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 June 30, 2024
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 July 26, 2024 there were 105,331,061 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
Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2024 and December 31, 2023
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023
5
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023
6
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023
7
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023
9
Notes to Condensed Consolidated Financial Statements (Unaudited)
11
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
40
3.
Quantitative and Qualitative Disclosures about Market Risk
53
4.
Controls and Procedures
55
PART II - OTHER INFORMATION
Legal Proceedings
56
1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
5.
Other Information
6.
Exhibits
Signatures
58
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) macroeconomic conditions, including due to geopolitical conditions and instability, which may lead to a disruption of or lack of access to the capital markets, disruptions and instability in the banking and financial services industries and rising inflation; (ii) our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (iii) 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; (iv) increases in our borrowing costs as a result of rising inflation, changes in interest rates and other factors; (v) our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due; (vi) 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; (vii) our ability to obtain the financial results expected from our development and redevelopment projects; (viii) 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; (ix) our potential liability for environmental matters; (x) damage to our properties from catastrophic weather and other natural events, and the physical effects of climate change; (xi) the economic, political and social impact of, and uncertainty surrounding, any public health crisis, such as the COVID-19 Pandemic, which adversely affected the Company and its tenants’ business, financial condition, results of operations and liquidity; (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; and (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.
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, 2023 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 Notes to the Condensed Consolidated Financial Statements of the registrant referenced in Part I, Item 1. Financial Statements.
3
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30,
December 31,
(in thousands, except share amounts)
2024
2023
ASSETS
Investments in real estate, at cost
Operating real estate, net
$
3,446,912
3,517,281
Real estate under development
101,802
94,799
Net investments in real estate
3,548,714
3,612,080
Notes receivable, net ($1,520 and $1,279 of allowance for credit losses as of June 30, 2024 and December 31, 2023, respectively)
126,653
124,949
Investments in and advances to unconsolidated affiliates
203,410
197,240
Other assets, net
213,779
208,460
Right-of-use assets - operating leases, net
27,748
29,286
Cash and cash equivalents
31,915
17,481
Restricted cash
23,139
7,813
Marketable securities
21,668
33,284
Rents receivable, net
54,012
49,504
Assets of properties held for sale
—
11,057
Total assets (a)
4,251,038
4,291,154
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage and other notes payable, net
955,069
930,127
Unsecured notes payable, net
644,313
726,727
Unsecured line of credit
96,446
213,287
Accounts payable and other liabilities
218,095
229,375
Lease liability - operating leases
29,964
31,580
Dividends and distributions payable
20,285
18,520
Distributions in excess of income from, and investments in, unconsolidated affiliates
7,301
7,982
Total liabilities (a)
1,971,473
2,157,598
Commitments and contingencies (Note 9)
Redeemable noncontrolling interests (Note 10)
40,874
50,339
Equity:
Acadia Shareholders' Equity
Common shares, $0.001 par value per share, authorized 200,000,000 shares, issued and outstanding 105,266,580 and 95,361,676 shares, respectively
105
95
Additional paid-in capital
2,115,689
1,953,521
Accumulated other comprehensive income
47,621
32,442
Distributions in excess of accumulated earnings
(381,945
)
(349,141
Total Acadia shareholders’ equity
1,781,470
1,636,917
Noncontrolling interests
457,221
446,300
Total equity
2,238,691
2,083,217
Total liabilities, redeemable noncontrolling interests, and equity
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands, except per share amounts)
Revenues
Rental
85,626
88,141
171,663
168,878
Other
1,628
1,807
6,947
2,909
Total revenues
87,254
89,948
178,610
171,787
Expenses
Depreciation and amortization
34,281
34,056
69,221
67,229
General and administrative
10,179
10,643
19,947
20,589
Real estate taxes
9,981
11,381
22,327
22,860
Property operating
15,781
14,210
34,877
29,343
Total expenses
70,222
70,290
146,372
140,021
Gain (loss) on disposition of properties
757
(441
Operating income
17,789
19,658
31,797
31,766
Equity in earnings (losses) of unconsolidated affiliates
4,480
(1,437
4,168
(1,408
Interest income
5,413
4,970
10,651
9,788
Realized and unrealized holding (losses) gains on investments and other
(2,364
1,815
(4,415
28,572
Interest expense
(23,581
(22,089
(47,290
(43,676
Income (loss) from continuing operations before income taxes
1,737
2,917
(5,089
25,042
Income tax provision
(155
(165
(186
(288
Net income (loss)
1,582
2,752
(5,275
24,754
Net loss attributable to redeemable noncontrolling interests
2,292
1,091
4,846
3,166
Net (income) loss attributable to noncontrolling interests
(2,431
5,433
5,141
(5,284
Net income attributable to Acadia shareholders
1,443
9,276
4,712
22,636
Basic income per share
0.01
0.09
0.04
0.23
Diluted income per share
Weighted average shares for basic income per share
103,592
95,260
102,860
95,225
Weighted average shares for diluted income per share
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Other comprehensive (loss) income:
Unrealized gain (loss) on valuation of derivatives
8,210
33,513
34,029
18,271
Reclassification of realized interest on swap derivatives
(8,850
(8,262
(17,683
(14,815
Other comprehensive (loss) income
(640
25,251
16,346
3,456
Comprehensive income
942
28,003
11,071
28,210
Comprehensive loss attributable to redeemable noncontrolling interests
Comprehensive (income) loss attributable to noncontrolling interests
(1,112
34
3,974
(5,702
Comprehensive income attributable to Acadia shareholders
2,122
29,128
19,891
25,674
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
Three Months Ended June 30, 2024 and 2023
Acadia Shareholders
CommonShares
ShareAmount
AdditionalPaid-inCapital
AccumulatedOtherComprehensiveIncome (Loss)
Distributionsin Excess ofAccumulatedEarnings
TotalCommonShareholders’Equity
NoncontrollingInterests
TotalEquity
Redeemable NoncontrollingInterests
Balance as of April 1, 2024
103,156
103
2,078,295
46,942
(364,440
1,760,900
465,169
2,226,069
45,462
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
400
6,427
(6,427
Issuance of Common Shares, net
1,652
2
28,273
28,275
Dividends/distributions declared ($0.18 per Common Share/OP Unit)
(18,948
(1,228
(20,176
City Point Loan accrued interest
(2,290
Employee and trustee stock compensation, net
59
623
2,473
3,096
Capital call receivable
6,153
Noncontrolling interest distributions
(7,960
(6
Noncontrolling interest contributions
Comprehensive income (loss)
679
1,112
3,234
(2,292
Reallocation of noncontrolling interests
2,071
(2,071
Balance as of June 30, 2024
105,267
Balance as of April 1, 2023
95,208
1,945,157
30,003
(304,173
1,671,082
459,181
2,130,263
63,269
54
901
(901
(17,160
(1,341
(18,501
City Point Loan
(796
(2,345
35
277
2,468
2,745
(5,492
796
19,852
(34
29,094
(1,091
1,444
(1,444
Balance as of June 30, 2023
95,297
1,947,779
49,855
(312,057
1,685,672
452,437
2,138,109
59,833
Six Months Ended June 30, 2024 and 2023
Redeemable Noncontrolling Interest
Balance at January 1, 2024
95,362
8,639
142,114
142,123
1,195
1
19,340
19,341
(19,341
Dividends/distributions declared ($0.36 per Common Share/OP Unit)
(37,516
(2,681
(40,197
-
(4,613
71
824
6,523
7,347
(13,425
43,709
15,179
(3,974
15,917
(4,846
(110
110
Balance at June 30, 2024
Balance at January 1, 2023
95,121
1,945,322
46,817
(300,402
1,691,832
489,364
2,181,196
67,664
91
1,533
(1,533
(34,291
(2,684
(36,975
Acquisition of noncontrolling interest
(4,665
85
1,264
6,366
7,630
(76,360
31,242
3,038
5,702
31,376
(3,166
(340
340
Balance at June 30, 2023
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss on disposition of properties
441
Net unrealized holding losses on investments
4,035
346
Stock compensation expense
Straight-line rents
(98
(1,518
Equity in (earnings) losses of unconsolidated affiliates
(4,168
1,408
Distributions of operating income from unconsolidated affiliates
3,024
1,789
Adjustments to straight-line rent reserves
(181
Amortization of financing costs
3,915
3,093
Non-cash lease expense
1,859
1,800
Acceleration of below market lease
(8,057
Other, net
(2,107
(2,881
Changes in assets and liabilities:
Rents receivable
(4,619
3,548
Other liabilities
(4,419
1,895
Accounts payable and accrued expenses
(2,210
(3,523
Prepaid expenses and other assets
(6,808
(6,193
(1,938
(1,825
Net cash provided by operating activities
58,019
89,495
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the disposition of properties
58,670
(6,355
(29,114
Development, construction and property improvement costs
(37,412
(30,570
Payment of deposits for properties under purchase contract
(1,250
(995
Return of capital from unconsolidated affiliates
4,689
38,097
Payment of deferred leasing costs
(4,001
(4,071
Proceeds from sale of marketable securities
7,580
Proceeds from repayment of note receivable
6,000
Issuance of note receivable
(7,945
Net cash provided by (used in) investing activities
19,976
(26,653
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured debt
96,384
95,699
Principal payments on unsecured debt
(293,825
(133,109
Proceeds from the sale of Common Shares
Capital contributions from noncontrolling interests
Principal payments on mortgage and other notes
(25,213
(61,153
Distributions to noncontrolling interests
(16,170
(29,834
Dividends paid to Common Shareholders
(35,733
(34,252
Proceeds received from mortgage and other notes
49,226
67,702
Payment of deferred financing and other costs
(8,647
(1,840
Payments of finance lease obligations
(89
Net cash used in financing activities
(48,235
(65,545
Increase (decrease) in cash and cash equivalents and restricted cash
29,760
(2,703
Cash and cash equivalents of $17,481 and $17,158 and restricted cash of $7,813 and $15,063, respectively, beginning of period
25,294
32,221
Cash and cash equivalents of $31,915 and $17,193 and restricted cash of $23,139 and $12,325, respectively, end of period
55,054
29,518
CONDENSED 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 $3,348 and $3,913 respectively (a)
62,126
55,349
Cash paid for income taxes, net of refunds
187
123
Supplemental disclosure of non-cash investing and financing activities
Dividends/distributions declared and payable
20,092
18,378
Issuance of note receivable used as capital contributions from redeemable noncontrolling interests
Conversion of Common OP Units to Common Shares
Accrued interest on note receivable recorded to redeemable noncontrolling interest
4,724
4,653
Distributions to noncontrolling interests of marketable securities
49,117
Retained investment in an unconsolidated affiliate
2,432
Reclassification of investment in unconsolidated affiliate to marketable securities
32,745
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
Acadia Realty Trust (the “Trust”, collectively with its consolidated subsidiaries, the “Company”), a Maryland real estate investment trust (“REIT”), 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 June 30, 2024 and December 31, 2023, the Trust controlled approximately 96% and 95%, respectively, of the Operating Partnership as the sole general partner and is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”) and employees who have been awarded restricted Common OP Units (“LTIP Units”) as long-term incentive compensation (Note 13). Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest, par value $0.001 per share, of the Company (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.”
As of June 30, 2024, 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 Investment Management (“Core Portfolio”). The Company also has ownership interests in 50 properties within an Investment Management platform, through which our Operating Partnership and outside institutional investors invest in primarily opportunistic and value-add retail real estate (“Investment Management”). As part of the Investment Management platform, we have active investments through the following opportunity funds, including: 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 199 Core Portfolio and Investment Management properties primarily consist of street and urban retail and suburban shopping centers.
The Operating Partnership is the sole general partner or managing member of the Funds and earns fees or priority distributions for asset management, property management, construction, development, leasing, and legal services. Cash flows from the Funds 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 (dollars in millions):
Entity
FormationDate
OperatingPartnershipShare ofCapital
Capital Called as of June 30, 2024 (a)
UnfundedCommitment (a)
Equity InterestHeld ByOperatingPartnership (b)
PreferredReturn
Total Distributions as of June 30, 2024 (a)
Fund II
6/2004
61.67
%
559.4
0.0
172.9
Fund III
5/2007
24.54
448.1
1.9
603.5
Fund IV
5/2012
23.12
506.0
24.0
221.4
Fund V
8/2016
20.10
459.6
60.4
121.6
Basis of Presentation
The interim condensed 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 condensed consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned condensed consolidated financial statements for the interim periods. Such adjustments consisted of normal recurring items.
GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the interim condensed 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.
These interim condensed consolidated financial statements should be read in conjunction with the Company’s 2023 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Segment Reporting
The Company renamed its historical Funds segment as the Investment Management segment. No prior period information was recast and the designation change did not impact the Company’s condensed consolidated financial statements. Refer to Note 12.
Recent Accounting Pronouncements
In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2023-05, “Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement” (“ASU 2023-05”). ASU 2023-05 addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. Prior to the amendment, the FASB did not provide specific authoritative guidance on the initial measurement of assets and liabilities assumed by a joint venture upon its formation. ASU 2023-05 requires a joint venture to recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). ASU 2023-05 is effective for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted. The Company has elected not to early adopt ASU 2023-05 and does not expect the adoption will have a significant impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 provides for additional disclosures as it relates to the Company’s segments. Additional requirements per the update include disclosures for significant segment expenses, measures of profit or loss used by the CODM and how these measures are used to allocate resources and assess segment performance. The amendments in ASU 2023-07 will also apply to entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023. The Company is evaluating the impact of this update on its disclosures and will adopt the amendments in its December 31, 2024 Annual Report on Form 10-K.
In March 2024, the SEC issued final climate-disclosure rules to enhance and standardize climate-related disclosures by public companies. With regards to financial statements, the rules requires disclosure of (i) capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, subject to applicable 1% and de minimis disclosure thresholds; (ii) capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material component of a company’s plans to achieve its disclosed climate-related targets or goals; and (iii) if the estimates and assumptions the Company uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted. The rules are effective for annual periods beginning January 1, 2025 and are to be applied prospectively. On April 4, 2024, the SEC voluntarily stayed the rules pending judicial review as a result of litigation. The Company is continuing to review the final rule and monitoring the litigation progress for possible impacts on the disclosure requirements and will adopt the required disclosures in their effective periods.
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 condensed consolidated financial statements.
12
2. Real Estate
The Company’s consolidated real estate is comprised of the following for the periods presented (in thousands):
Land
849,524
872,228
Buildings and improvements
3,106,413
3,128,650
Tenant improvements
283,309
257,955
Construction in progress
21,023
23,250
Right-of-use assets - finance leases (Note 11)
58,637
Total
4,318,906
4,340,720
Less: Accumulated depreciation and amortization
(871,994
(823,439
Acquisitions
During the six months ended June 30, 2024, the Company did not acquire any retail properties and other real estate investments.
Dispositions
During the six months ended June 30, 2024, The Company disposed of the following properties and other real estate investments:
Property and Location
Owner
Date Sold
Sale Price
Gain (Loss)on Sale
2024 Dispositions
2208-2216 Fillmore Street - San Francisco, CA
4/3/2024
9,777
1,239
2207 Fillmore Street - San Francisco, CA
4,283
1,130
Shops at Grand - Queens, NY
Core
5/16/2024
48,250
(2,213
Canton Marketplace (Outparcel) - Canton, GA
6/28/2024
2,200
601
Total 2024 Dispositions (a)
64,510
On May 16, 2024, the Company sold a 95% interest in the Shops at Grand property located in Queens, NY for $48.3 million and retained a 5% ownership interest through an investment in a newly formed joint venture which was fair valued at $2.4 million. As a result of the transaction, the Company deconsolidated the property and accounted for its interest under the equity method of accounting effective May 16, 2024 as it no longer controls the investment (Note 4). The Company recognized a loss on deconsolidation of $2.2 million related to transaction costs, which is included in the Gain on disposition of properties in the Condensed and Consolidated Statements of Operations.
Properties Held for Sale
The Company had one property classified as held for sale as of December 31, 2023. The property as of December 31, 2023 was moved to Investments in real estate, at cost during the first quarter of 2024, as the Company no longer believes it is probable the asset will be disposed within the next twelve months.
Real Estate Under Development
Real estate under development represents the Company’s consolidated properties that have not yet been placed into service while undergoing substantial development or construction.
13
Development activity for the Company’s consolidated properties comprised the following during the periods presented (dollars in thousands):
January 1, 2024
Six Months Ended June 30, 2024
June 30, 2024
Number ofProperties
CarryingValue
Transfers In
CapitalizedCosts
Transfers Out
66,083
5,893
71,976
28,716
1,110
29,826
7,003
The number of properties in the table above refers to projects comprising the entire property under development; however, certain projects represent a portion of a property. As of June 30, 2024, consolidated development projects included: portions of the Henderson 1 & 2 Portfolio in the Core Portfolio, and Broad Hollow Commons in Fund III.
During the six months ended June 30, 2024, the Company did not place any assets into service.
Construction in progress pertains to construction activity at the Company’s operating properties that are in service and continue to operate during the construction period.
3. Notes Receivable, Net
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, net (Note 5). 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)
128,173
126,228
Apr 2020 - Dec 2027
4.65% - 12.00%
Allowance for credit losses
(1,520
(1,279
Notes receivable, net
Changes in the Company’s credit allowance were as follows (in thousands):
Allowance for credit losses as of beginning of periods
1,279
834
Provision of loan losses
241
65
Total - credit losses and reserves
1,520
899
Due to the lack of comparability across the Structured Financing portfolio, each note was evaluated separately. As a result, the Company did not elect the collateral-dependent allowance for credit losses practical expedient for five of its notes with a total amortized cost of $132.8 million, inclusive of accrued interest of $22.4 million, for which an allowance for credit losses has been recorded aggregating $1.5 million as of June 30, 2024. For one note in this portfolio, aggregating $21.6 million, inclusive of accrued interest of $3.8 million as of June 30, 2024, the Company has elected to apply the practical expedient in accordance with ASC Topic 326: Financial Instruments - Credit Losses (“ASC 326”) and did not establish an allowance for credit losses because (i) this note is a collateral-dependent note, which due to their settlement terms is not expected to be settled in cash but rather by the Company’s possession of the real estate collateral; and (ii) as of June 30, 2024, the Company determined that the estimated fair value of the collateral at the expected realization date for this loans was sufficient to cover the carrying value of its investments in this note receivable.
14
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 as of June 30, 2024 and December 31, 2023. 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 as of June 30, 2024 and December 31, 2023.
During the six months ended June 30, 2024, the Company:
15
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. 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%
30,203
30,745
Gotham Plaza
49%
30,616
30,772
Georgetown Portfolio (a)
50%
4,211
4,230
1238 Wisconsin Avenue (a, b)
80%
19,169
19,719
840 N. Michigan Avenue (c)
91.85%
22,384
15,761
106,583
101,227
Investment Management:
Fund IV:
Fund IV Other Portfolio
90%
5,510
5,221
650 Bald Hill Road
9,767
9,486
Paramus Plaza (d)
4,133
70
19,410
14,777
Fund V:
Family Center at Riverdale (c)
89.42%
1,847
2,552
Tri-City Plaza
5,363
6,452
Frederick County Acquisitions
12,365
11,345
Wood Ridge Plaza
10,014
10,313
La Frontera Village
15,638
17,483
Shoppes at South Hills
10,426
11,707
Mohawk Commons
14,728
16,434
70,381
76,286
Other:
Shops at Grand
5%
2,441
Various:
Due from (to) Related Parties
299
396
Other (e)
4,296
4,554
Investments in and advances tounconsolidated affiliates
Crossroads (f)
Distributions in excess of income from,and investments in, unconsolidated affiliates
16
Fees earned from and paid to Unconsolidated Affiliates
The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated affiliates totaling $0.3 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and $0.4 million and $0.2 for the six months ended June 30, 2024 and 2023, respectively, which are included in Other revenues in the Condensed Consolidated Statements of Operations.
In addition, the Company’s unconsolidated joint ventures paid fees to affiliates of $1.1 million and $0.8 million for the three months ended June 30, 2024 and 2023, respectively, and $2.2 million and $1.6 million for the six months ended June 30, 2024 and 2023, 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 June 30, 2024 (in thousands):
Combined and Condensed Balance Sheets
Assets:
Rental property, net
734,373
723,411
Other assets
128,786
125,699
Total assets
863,159
849,110
Liabilities and partners’ equity:
Mortgage notes payable
630,882
662,552
89,409
100,270
Partners’ equity
142,868
86,288
Total liabilities and partners’ equity
Company's share of accumulated equity
136,176
128,690
Basis differential
51,336
51,824
Deferred fees, net of portion related to the Company's interest
4,002
3,794
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
191,813
184,704
Investments carried at fair value or cost
Company's share of distributions in excess of income from and investments in unconsolidated affiliates
17
Combined and Condensed Statements of Operations
28,180
28,667
56,184
56,885
Operating and other expenses
(10,149
(8,708
(20,135
(17,349
(10,205
(9,901
(20,619
(19,134
(10,129
(11,233
(21,795
(20,134
Gain on extinguishment of debt
853
2,011
Impairment of Investment
Gain on disposition of property
8,519
Net income (loss) attributable to unconsolidated affiliates
6,781
(1,175
3,877
268
Company’s share of equity in net earnings (losses) of unconsolidated affiliates
(1,190
4,656
(914
Basis differential amortization
(244
(247
(488
(494
Company’s equity in earnings (losses) of unconsolidated affiliates
5. Other Assets, Net and Accounts Payable and Other Liabilities
Other assets, net and accounts payable and other liabilities are comprised of the following for the periods presented:
Other Assets, Net:
Lease intangibles, net (Note 6)
86,429
100,594
Derivative financial instruments (Note 8)
40,338
28,989
Deferred charges, net (A)
36,071
31,074
Accrued interest receivable (Note 3)
28,768
25,553
Prepaid expenses
13,242
15,204
Due from seller
2,343
2,631
Income taxes receivable
1,472
1,141
Deposits
1,816
575
Corporate assets, net
740
924
Other receivables
2,560
1,775
(A) Deferred Charges, Net:
Deferred leasing and other costs
77,445
73,908
Deferred financing costs related to line of credit
12,111
9,829
89,556
83,737
Accumulated amortization
(53,485
(52,663
Deferred charges, net
Accounts Payable and Other Liabilities:
69,414
73,994
62,198
61,425
Deferred income
36,086
34,386
Tenant security deposits, escrow and other
13,988
17,939
Lease liability - finance leases, net (Note 11)
32,649
32,739
3,760
8,892
18
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 Condensed Consolidated Balance Sheets and summarized as follows (in thousands):
December 31, 2023
Gross CarryingAmount
AccumulatedAmortization
Net CarryingAmount
Amortizable Intangible Assets
In-place lease intangible assets
323,051
(243,503
79,548
327,484
(234,808
92,676
Above-market rent
26,290
(19,409
6,881
27,294
(19,376
7,918
349,341
(262,912
354,778
(254,184
Amortizable Intangible Liabilities
Below-market rent
(184,029
114,873
(69,156
(188,098
114,393
(73,705
Above-market ground lease
(671
413
(258
382
(289
(184,700
115,286
(69,414
(188,769
114,775
(73,994
The Company did not have any acquisitions of real estate or acquired lease intangibles. During the six months ended June 30, 2024, the Company:
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 Condensed Consolidated Statements of Operations. Amortization of above-market ground leases are recorded as a reduction to rent expense in the Condensed Consolidated Statements of Operations.
The scheduled amortization of acquired lease intangible assets and assumed liabilities as of June 30, 2024 is as follows (in thousands):
Years Ending December 31,
Net Increase inRental Revenues
Increase toAmortization Expense
Reduction ofProperty Operating Expense
2024 (Remainder)
2,408
(11,088
29
2025
4,496
(17,774
2026
4,446
(14,335
2027
4,388
(11,066
2028
4,472
(7,206
19
7. Debt
A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):
Carrying Value as of
Interest Rate as of
Maturity Date as of
Mortgages Payable
3.99% - 5.89%
Jul 2027 - Apr 2035
$181,099
$191,830
Fund II (a)
SOFR+2.61%
Aug 2025
137,485
SOFR+3.75%
Oct 2025
33,000
Fund IV (b)
SOFR+2.25% - SOFR+3.33%
March 2025 - Jun 2028
109,484
115,925
SOFR+1.80% - SOFR+2.85%
Jul 2024 - Jun 2028
500,144
458,960
Net unamortized debt issuance costs
(6,366)
(7,313)
Unamortized premium
223
240
Total Mortgages Payable
$955,069
$930,127
Unsecured Notes Payable
Core Term Loans (c)
SOFR+1.50% - SOFR+1.95%
Apr 2027 - Jul 2029
$650,000
Fund V Subscription Line (d)
80,600
(5,687)
(3,873)
Total Unsecured Notes Payable
$644,313
$726,727
Unsecured Line of Credit
Revolving Credit Facility (c)
SOFR+1.35%
Apr 2028
$96,446
$213,287
Total Debt (e)(f)
$1,707,658
$1,881,087
(12,053)
(11,186)
Total Indebtedness
$1,695,828
$1,870,141
Unsecured Debt
Credit Facility
In April 2024, the Operating Partnership entered into a Third Amended and Restated Credit Agreement, with Bank of America, N.A., as administrative agent, to amend its existing senior unsecured credit facility (the “Amended Credit Facility”). The Amended Credit Facility provides for an increase in the existing unsecured revolving credit facility (the “Revolver”) from $300.0 million to $350.0 million, which includes the capacity to issue letters of credit in an amount up to $60.0 million, and the extension of the term from June 29, 2025 to April 15, 2028, with two additional six-month extension options. The Amended Credit Facility also provides for the extension of the term on the existing $400.0 million unsecured term loan (“Term Loan”) from June 29, 2026 to April 15, 2028, with two additional six-month extension options. The Amended Credit Facility has an accordion feature to increase its capacity up to $900 million at the option of the Operating Partnership, subject to customary conditions. Borrowings under the Revolver and the Term Loan will accrue interest at a floating rate based on SOFR with margins based on leverage or credit rating. The Credit Facility is guaranteed by the Trust and certain subsidiaries of the Trust (Note 9).
Revolving Credit Facility
As of June 30, 2024, the Revolver bears interest at SOFR + 1.35% and matures on April 15, 2028, subject to two six-month extension options. The outstanding balance and total available credit of the Revolver was $96.4 million and $253.6 million, respectively, as of June 30, 2024, reflecting no letters of credit outstanding. The outstanding balance and total available credit of the Revolver was $213.3 million and $86.7 million, respectively, as of December 31, 2023, reflecting no letters of credit outstanding.
20
Core Term Loans
As of June 30, 2024, the Term Loan bears interest at SOFR + 1.50% and matures on April 15, 2028.
The Operating Partnership has 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, matures on April 6, 2027, and is guaranteed by the Trust and certain subsidiaries of the Trust (Note 9). As of June 30, 2024, the $175.0 Million Term Loan bears interest at SOFR + 1.60%.
The Operating Partnership has a $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, matures on July 29, 2029, and is guaranteed by the Trust and certain subsidiaries of the Trust (Note 9). As of June 30, 2024, the $75.0 Million Term Loan bears interest at SOFR + 1.95%.
Mortgages and Other Notes Payable
During the six months ended June 30, 2024, the Company (amounts represent balances at the time of transactions):
A portion of the Company’s variable-rate mortgage debt has been effectively fixed through certain cash flow hedge transactions (Note 8).
As of both June 30, 2024 and December 31, 2023, the Company’s mortgages were collateralized by 31 properties and the related tenant leases. Certain loans are cross-collateralized and contain cross-default provisions. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and leverage ratios. The Company was in compliance with its debt covenants as of June 30, 2024.
Fund IV also has an outstanding balance and total available credit on its secured bridge facility of $36.2 million and $0.0 million, respectively, as of both June 30, 2024 and December 31, 2023. The Operating Partnership has guaranteed up to $22.5 million of the Fund IV secured bridge facility (Note 9).
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 June 30, 2024 are as follows (in thousands):
Year Ending December 31,
Principal Repayments
214,585
412,878
56,911
248,828
678,250
Thereafter
96,206
1,707,658
(12,053
Total indebtedness
1,695,828
21
The table above does not reflect available extension options (subject to customary conditions) on consolidated debt with balances as of June 30, 2024. The Company has debt balances contractually due of $40.0 million in 2024, $327.3 million due in 2025, $27.4 million due in 2026 and $69.4 million in 2027, all of which the Company has available options to extend by up to 12 months, and for some an additional 12 months thereafter. However, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options.
8. Financial Instruments and Fair Value Measurements
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.
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. This investment was included in Marketable securities on the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023.
Derivative Financial Instruments — The Company has derivative assets, which are included in Other assets, net on the Condensed Consolidated Balance Sheets, and are comprised of interest rate swaps and caps. The Company has derivative liabilities, which are included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets and are comprised of interest rate swaps. 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.
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
Marketable equity securities
Derivative financial instruments
Liabilities
(3,760
(8,892
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.
The Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the six months ended June 30, 2024, and 2023.
Marketable Equity Securities
During the three months ended June 30, 2024, the Company sold 175,000 shares of Albertsons, generating net proceeds of $3.6 million. During the six months ended June 30, 2024, the Company sold 350,000 shares of Albertsons, generating net proceeds of $7.6 million. As of June 30, 2024, the Company held 1.1 million shares of Albertsons which had a fair value of $21.7 million.
During the three months ended June 30, 2024 and 2023, the Company recognized dividend income from marketable securities of $0.2 million and $0.2 million, of which the Company's share was $0.2 million and $0.2 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recognized dividend income from marketable securities of $0.3 million and $28.7 million, of which the Company's share was $0.3 million and $11.6 million, respectively. These amounts are included in Realized and unrealized holding (losses) gains on investments and other on the Company's Condensed Consolidated Statements of Operations.
22
The following table represents the realized and unrealized gain (loss) on marketable securities included in Realized and unrealized holding (losses) gains on investments and other on the Company's Condensed Consolidated Statements of Operations (in thousands):
Realized gain on marketable securities, net
3,586
Less: previously recognized unrealized gains on marketable securities sold during the period
(3,586
(7,580
Unrealized (losses) gains on marketable securities still held as of the end of the period and through the disposition date on marketable securities sold during the period
(2,020
1,713
(4,035
(346
(Loss) gain on marketable securities, net
Items Measured at Fair Value on a Nonrecurring Basis
Impairment Charges
The Company did not recognize any impairments of consolidated assets during the six months ended June 30, 2024, and 2023.
Redeemable Noncontrolling Interests
The Company has redeemable noncontrolling interests related to certain properties. The Company is required to periodically review these redeemable noncontrolling interests in order to compare the redemption value to the carrying value. See Note 10 for further discussion regarding these interests.
Derivative Financial Instruments
The Company had the following interest rate swaps and caps for the periods presented (information is as of June 30, 2024, unless otherwise noted, and dollars in thousands):
Strike Rate
Fair Value
DerivativeInstrument
Aggregate Notional Amount
Effective Date
Low
High
Balance SheetLocation
June 30,2024
December 31,2023
Interest Rate Swaps
175,000
Oct 2023
Jul 2027 - Jul 2029
4.59%
4.69%
(8,807
681,000
May 2022 - May 2023
Mar 2025 - Jul 2030
1.98%
3.61%
Other Assets
34,303
22,675
856,000
30,543
13,868
Interest Rate Swap
50,000
Jan 2023
Dec 2029
3.23%
1,814
634
Interest Rate Cap
Sep 2023
5.50%
26
54,500
Dec 2023
Dec 2025
6.00%
341,944
Apr 2022 - Mar 2024
Sep 2024- Dec 2027
1.14%
4.49%
3,981
5,523
Interest Rate Caps
72,164
Aug 2023 - Feb 2024
Jan 2025 - Sep 2025
4.50%
5.00%
212
102
(85
414,108
4,193
5,540
Total asset derivatives
Total liability derivatives
23
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 $22.9 million included in Accumulated other comprehensive income related to derivatives will be reclassified as a reduction to interest expense within the next twelve months. As of June 30, 2024 and December 31, 2023, 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.
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)
126,647
124,789
City Point Loan (a)
66,741
66,674
66,017
Mortgage and Other Notes Payable (a)
961,212
947,938
937,200
921,563
Investment in non-traded equity securities (b)
4,141
4,398
4,702
Unsecured notes payable and Unsecured line of credit (c)
746,446
746,873
943,887
937,153
The Company’s cash and cash equivalents, restricted cash, rents receivable, accounts payable and certain financial instruments (classified as Level 1) included in other assets and other liabilities had fair values that approximated their carrying values due to their short maturity profiles as of June 30, 2024 and December 31, 2023.
24
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
From time to time, the Company (or ventures in which the Company has an ownership interest) has agreed, and may in the future agree, to guarantee portions of the principal, interest and other amounts in connection with their borrowings, provide customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) in connection with their borrowings and provide guarantees to lenders, tenants and other third parties for the completion of development projects.
With respect to borrowings of our consolidated entities, the Company and certain subsidiaries of the Company have guaranteed $72.5 million of principal payment guarantees on various property mortgage loans and the Fund IV secured bridge facility (Note 7). As of June 30, 2024 and December 31, 2023, no amounts related to the guarantees were recorded as liabilities in the Company’s condensed consolidated financial statements. As of June 30, 2024, the Company had no Core or Fund letters of credit outstanding, and as of December 31, 2023, the Company had no Core letters of credit outstanding and had Fund letters of credit of $2.0 million outstanding. 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.
Additionally, in connection with the refinancing of the La Frontera Village mortgage loan of $57.0 million, which is collateralized by the investment property, Fund V guaranteed the joint venture’s obligation under the loan. Fund V earned a fee from the joint venture for providing the guarantee. As of June 30, 2024, $0.2 million related to the guarantee was recorded as a liability in the Company’s condensed consolidated financial statements (Note 4).
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 $11.5 million and $15.8 million, of which the Company’s share is $9.5 million and $12.5 million as of June 30, 2024 and December 31, 2023, respectively. The Company has committed client-related obligations for tenant improvements based on executed leases aggregating approximately $22.8 million and $25.7 million, of which the Company’s share is $13.6 million and $14.6 million, as of June 30, 2024 and December 31, 2023, respectively. The timing and amounts of payments for tenant-related obligations are uncertain and may only be due upon satisfactory performance of certain conditions.
Forfeiture of Deposits
The Company entered into a purchase and sale agreement (together with subsequent amendments thereto) to sell its West Shore Expressway property in the Core Portfolio. At the request of the former potential buyer, the Company extended the closing date numerous times in exchange for additional non-refundable deposits and contributions towards the carrying costs of the property. The agreement terminated and expired by its terms in August 2023, and the deposit was forfeited to an affiliate of the Company, when, among other things, the former potential buyer failed to close on the property pursuant to the terms of the agreement. During the third quarter of 2023, the former potential buyer filed for Chapter 11 bankruptcy, which bankruptcy was dismissed during the fourth quarter of 2023, and as of March 31, 2024 is no longer subject to appeal. The Company recorded income of $3.5 million in Other revenues on the Condensed Consolidated Statements of Operations during the three months ended March 31 2024, related to the forfeiture of the non-refundable payments.
Insurance Coverage
We carry insurance coverage on our properties of different types and in amounts with deductibles that we believe are in line with coverage customarily obtained by owners of similar properties.
25
10. Shareholders’ Equity, Noncontrolling Interests and Other Comprehensive Loss
Common Shares and Units
In January 2024, the Company completed an underwritten offering of 6,900,000 Common Shares (inclusive of the underwriters’ option to purchase 900,000 additional shares) for net proceeds of $113.0 million.
In addition to the ATM Program activity discussed below, the Company completed the following transactions in its Common Shares during the six months ended June 30, 2024:
ATM Program
The Company has an at-the-market equity issuance program (“ATM Program”) that provides the Company with 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 sale” component, in the first quarter of 2022. The Company had approximately $192.1 million of availability under the ATM program as of June 30, 2024. The Company did not sell or issue any Common Shares on a forward basis for the six months ended June 30, 2024 or 2023. The Company sold 1,739,288 Common Shares under its ATM Program during the six months ended June 30, 2024 generating $29.9 million of net proceeds after related issuance costs. No such sales were made during the six months ended June 30, 2023.
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 six months ended June 30, 2024 or 2023. Under the share repurchase program $122.5 million remains available as of June 30, 2024.
Dividends and Distributions
During the three months ended June 30, 2024 and 2023, the Company declared distributions on Common Shares/OP Units of $0.18 per Common Share/Unit. During the six months ended June 30, 2024 and 2023, the Company declared distributions on Common Shares/OP Units of $0.36 per Common Share/Unit in the aggregate.
Noncontrolling Interests
The following tables summarize the change in the noncontrolling interests for the three and six months ended June 30, 2024 and 2023 (dollars in thousands, except per unit data):
NoncontrollingInterests inOperatingPartnership (a)
NoncontrollingInterests inPartially-OwnedAffiliates (b)
Redeemable Noncontrolling Interests (c)
92,707
372,462
Distributions declared of $0.18 per Common OP Unit and distributions on Preferred OP Units
Net income (loss) for the three months ended June 30, 2024
193
2,238
2,431
Conversion of 255,304 Common OP Units and 41,599 Series C Preferred Units to Common Shares by limited partners of the Operating Partnership
Other comprehensive income - unrealized gain on valuation of swap agreements
86
2,282
2,368
Reclassification of realized interest expense on swap agreements
(50
(3,637
(3,687
Employee Long-term Incentive Plan Unit Awards
Reallocation of noncontrolling interests (d)
85,683
371,538
103,219
355,962
Net income (loss) for the three months ended June 30, 2023
697
(6,130
(5,433
Conversion of 54,040 Common OP Units to Common Shares by limited partners of the Operating Partnership
1,169
7,867
9,036
(54
(3,583
103,813
348,624
27
99,718
346,582
Distributions declared of $0.36 per Common OP Unit and distributions on Preferred OP Units
Net income (loss) for the six months ended June 30, 2024
513
(5,654
(5,141
Conversion of 1,050,449 Common OP Units and 41,599 Series C Preferred Units to Common Shares by limited partners of the Operating Partnership
945
7,660
8,605
(104
(7,334
(7,438
99,554
389,810
Net income (loss) for the six months ended June 30, 2023
1,614
3,670
5,284
Conversion of 91,433 Common OP Units to Common Shares by limited partners of the Operating Partnership
255
6,520
6,775
(99
(6,258
(6,357
28
Williamsburg Portfolio
In connection with the Williamsburg Portfolio acquisition in February 2022, the venture partner has a one-time right to put its 50.01% interest in the property to the Company for redemption at fair value at a future date (“Williamsburg NCI”). 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. As of June 30, 2024, the Company determined there was no change in the fair value of the Williamsburg NCI.
In August 2022, the Company provided a loan to other Fund II investors in City Point to fund the investors' pro rata contribution necessary to complete the refinancing of the City Point debt, of which $65.9 million was funded at closing ("City Point Loan"). The City Point Loan is collateralized by the investors' equity in City Point ("City Point NCI"). The City Point Loan, net of a $0.7 million allowance for credit loss as of June 30, 2024, is presented as a reduction of the City Point NCI balance. 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. As of June 30, 2024, the Company determined that the carrying value of the City Point NCI exceeded the maximum redemption value and no adjustment was required.
8833 Beverly Boulevard
In July 2023, the Company entered into a limited partnership agreement to own and operate the 8833 Beverly Boulevard property. Following the formation of the partnership, the Company retained a 97.0% controlling interest. At a future point in time, either party may elect a buy-out right, where either the Company may purchase the venture partner’s interest, or the venture partner may sell its 3.0% interest in the partnership (the "8833 Beverly NCI") to the Company for fair value. As a result of these redemption rights, the 8833 Beverly NCI was initially recorded at fair value. As of June 30, 2024, the redemption value of the 8833 Beverly NCI was $0.1 million. As of June 30, 2024, the Company determined that the carrying value exceeded the maximum redemption value and no adjustment was required.
Preferred OP Units
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 June 30, 2024, 56,808 Series C Preferred OP Units were converted into 197,053 Common OP Units and then into Common Shares.
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 June 30, 2024, 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.
11. Leases
As Lessor
The Company has approximately 1,200 leases in the leasing of shopping centers and other retail properties that are either owned or, with respect to certain shopping centers, leased under long-term ground leases (see below) that expire at various dates through December 31, 2121, with renewal options. Certain leases may allow for the tenants to terminate the leases before the expiration of the lease term. Space in the properties is leased to tenants pursuant to agreements that generally provide for terms ranging from one month to sixty years and for additional rents based on certain operating expenses as well as tenants’ sales volumes.
The components of rental revenue are as follows (in thousands):
Fixed lease revenue
69,366
73,102
138,023
137,984
Variable lease revenue
16,260
15,039
33,640
30,894
Total rental revenue
The scheduled future minimum 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) as of June 30, 2024, are summarized as follows (in thousands):
Minimum RentalRevenues (a)
122,128
247,728
225,695
201,243
171,544
670,820
1,639,158
During the three and six months ended June 30, 2024 and 2023, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.
30
As Lessee
The Company has properties in its portfolio that are currently owned by third parties. We also lease real estate for equipment and office space. We lease these properties pursuant to ground leases that provide us the right to operate each such property, and generally provide terms ranging from five months to 98 years.
Minimum Rental Payments
Operating Leases (a)
Finance Leases (a)
2,723
2,046
5,402
2,536
5,247
4,450
4,236
1,310
15,967
154,017
38,025
162,437
Interest
(8,061
(129,788
Additional disclosures regarding the Company’s leases as lessee are as follows (dollars in thousands):
Lease Cost
Finance lease cost:
Amortization of right-of-use assets
354
225
603
451
Interest on lease liabilities
512
108
1,034
214
Subtotal
866
333
1,637
665
Operating lease cost
1,303
1,328
2,635
2,664
Variable lease cost
69
73
144
Total lease cost
1,734
4,416
3,473
Weighted-average remaining lease term - finance leases (years)
58.1
31.6
Weighted-average remaining lease term - operating leases (years)
9.4
13.3
Weighted-average discount rate - finance leases
6.5
6.3
Weighted-average discount rate - operating leases
5.1
12. Segment Reporting
The Company has three reportable segments: Core Portfolio, Investment Management, and Structured Financing. The Company’s Core Portfolio segment 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 Investment Management segment holds 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 Investment Management (Note 3). Fees earned by the Company as the general partner or managing member of the Funds are eliminated in the Company’s condensed consolidated financial statements and are not presented in the Company’s segments.
The Company renamed its historical Funds segment as the Investment Management segment. No prior period information was recast and the designation change did not impact the Company’s condensed consolidated financial statements. Refer to Note 1.
31
The following tables set forth certain segment information for the Company (in thousands):
For the Three Months Ended June 30, 2024
CorePortfolio
Investment Management
StructuredFinancing
Unallocated
Total Revenues
48,895
38,359
Depreciation and amortization expenses
(17,966
(16,315
(34,281
General and administrative expenses
(10,179
Property operating expenses, other operating and real estate taxes
(14,379
(11,383
(25,762
Loss (gain) on disposition of properties
2,970
14,337
13,631
Equity in earnings of unconsolidated affiliates
640
3,840
(2,155
(209
(9,940
(13,641
2,882
3,830
5,204
Net income
(10,334
Net income attributable to noncontrolling interests
(194
(2,237
2,688
3,885
For the Three Months Ended June 30, 2023
56,376
33,572
(20,035
(14,021
(34,056
(10,643
(15,055
(10,536
(25,591
21,286
9,015
(2,361
Realized and unrealized holding gains (losses) on investments and other
(10,990
(11,099
13,035
(4,445
(10,808
(735
6,168
12,300
2,814
32
As of or for the Six Months Ended June 30, 2024
102,433
76,177
(36,232
(32,989
(69,221
(19,947
(32,298
(24,906
(57,204
1,772
31,690
20,054
2,747
1,421
(4,018
(397
(19,977
(27,313
10,442
(5,838
10,254
(20,133
(563
5,704
9,879
Real estate at cost (a)
2,616,224
1,804,484
4,420,708
2,543,067
1,581,318
Cash paid for development and property improvement costs
29,023
8,389
37,412
As of or for the Six Months Ended June 30, 2023
106,172
65,615
(38,694
(28,535
(67,229
(20,589
(31,164
(21,039
(52,203
36,314
16,041
(4,131
Realized and unrealized holding gains on investments and other
3,393
24,995
184
(21,660
(22,016
20,770
14,889
9,972
(20,877
(1,637
(3,647
19,133
14,408
2,613,206
1,669,773
4,282,979
2,580,565
1,499,692
123,902
4,204,159
15,560
15,010
30,570
13. Share Incentive and Other Compensation
33
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. In this report, references to issuances, compensation arrangements and expenses under the Amended and Restated 2020 Plan include issuances, compensation arrangements and expenses under the originally adopted 2020 Plan, as applicable. 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. As of June 30, 2024 a total of 3,048,027 shares remained available to be issued under the Amended and Restated 2020 Plan.
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 as of December 31, 2022
92,735
17.31
1,465,398
18.59
Granted
70,629
14.11
780,193
15.00
Vested
(41,268
19.09
(354,343
20.35
Forfeited
(8,187
21.07
(92,589
30.78
Unvested as of December 31, 2023
113,909
14.41
1,798,659
16.03
49,756
17.06
766,508
16.19
(55,947
17.20
(373,844
19.36
(302
22.53
(62,502
26.47
Unvested as of June 30, 2024
107,416
14.16
2,128,821
15.19
The weighted-average grant date fair value for Restricted Shares and LTIP Units granted for the six months ended June 30, 2024 and the year ended December 31, 2023 were $16.24 and $14.93, respectively. As of June 30, 2024, there was $22.7 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Amended and Restated 2020 Plan. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Shares that vested during the six months ended June 30, 2024 and the year ended December 31, 2023, was $1.0 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 six months ended June 30, 2024 and the year ended December 31, 2023, was $7.2 million and $7.2 million, respectively.
Restricted Shares and LTIP Units - Employees
During the six months ended June 30, 2024, the Company issued 727,429 LTIP Units and 26,308 restricted share units (“Restricted Share Units”), to employees of the Company pursuant to the Amended and Restated 2020 Plan. These awards were measured at their fair value on the grant date, incorporating the following factors:
For valuation of the 2024 and 2023 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 (43.0% and 48.0%) and risk-free interest rates of (4.8% and 4.3%) for 2024 and 2023, respectively. The total fair value of the 2024 and 2023 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 $12.1 million for the six months ended June 30, 2024 and $11.5 million for the year ended December 31, 2023. Total long-term incentive compensation expense, including the expense related to the Amended and Restated 2020 Plan, was $2.4 million and $2.8 million for the three months ended June 30, 2024, and 2023, respectively, and $4.5 million and $5.7 million for the six months ended June 30, 2024 and 2023, respectively, and is recorded in General and administrative in the Condensed Consolidated Statements of Operations.
Restricted Shares and LTIP Units - Board of Trustees
In addition, members of the Board have been issued shares and units under the Amended and Restated 2020 Plan. During the six months ended June 30, 2024, the Company issued 39,079 LTIP Units and 23,448 Restricted Share Units to Trustees of the Company. The Restricted Share Units 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 Amended and Restated 2020 Plan, was $0.5 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively, and $0.8 million and $1.1 million for the six months ended June 30, 2024 and 2023, respectively, and is recorded in General and administrative in the Condensed Consolidated Statements of Operations.
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 21.3% 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 as of 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 June 30, 2024 or December 31, 2023.
For the six months ended June 30, 2024, the Company did not recognize any compensation expense under the Program related to Funds III and V. For the six months ended June 30, 2023, the Company recognized $0.2 million of compensation expense under the Program related to Funds III and V.
Other Plans
On a combined basis, the Company incurred a total of $0.3 million of compensation expense related to the following employee benefit plans for each of the six months ended June 30, 2024 and 2023, 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 7,811 and 8,114 Common Shares were purchased by employees under the Purchase Plan for the six months ended June 30, 2024 and 2023, respectively, and 167,655 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 $23,000, for the year ending December 31, 2024.
36
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 Amended and Restated 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 condensed 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, except per share data)
Numerator:
Less: earnings attributable to unvested participating securities
(290
(577
(490
Income from continuing operations net of income attributable to participating securities for basic earnings per share
1,153
9,029
4,135
22,146
Denominator:
Weighted average shares for basic earnings per share
103,592,238
95,259,924
102,859,977
95,224,901
Effect of dilutive securities:
Series A Preferred OP Units
Employee unvested restricted shares
Weighted average shares for diluted earnings per share
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
25,067
Series C Preferred OP Units
84,785
126,384
Series C Preferred OP Units - Common share equivalent
294,390
438,831
Restricted shares
82,410
96,143
37
15. Variable Interest Entities
Pursuant to GAAP consolidation guidance, the Company consolidates certain VIEs for which the Company is the primary beneficiary. As of June 30, 2024 and December 31, 2023, the Company has identified seven consolidated VIEs, including the Operating Partnership and the Funds. Excluding the Operating Partnership and the Funds, the VIEs consisted of three in-service core properties: the Williamsburg Portfolio, 239 Greenwich Avenue, and 8833 Beverly Boulevard. 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. The Company consolidates these VIEs because it is the primary beneficiary in which the Company 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 third parties’ interests in these consolidated entities are reflected as noncontrolling interests and redeemable noncontrolling interests in the accompanying condensed consolidated financial statements and in Note 10.
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, substantially all of the assets and liabilities on the Condensed Consolidated Balance Sheets represent the assets and liabilities of the Operating Partnership. As of June 30, 2024 and December 31, 2023, the Condensed Consolidated Balance Sheets include the following assets and liabilities of the consolidated VIEs of the Operating Partnership:
VIE ASSETS
1,654,533
1,679,779
28,851
91,070
92,802
90,280
101,679
2,214
2,112
20,719
10,787
10,768
7,048
23,922
21,427
Total VIE assets (a)
1,923,470
1,944,485
VIE LIABILITIES
800,269
764,614
80,473
128,053
127,162
Lease liability - operating leases, net
2,304
2,213
Total VIE liabilities (a)
930,626
974,462
Unconsolidated VIEs
The Company holds variable interests in certain VIEs which are not consolidated. While the Company may be responsible for managing the day-to-day operations of these investees, it is not the primary beneficiary of these VIEs, as the Company does not hold unilateral power over activities that, when taken together, most significantly impact the respective VIE's economic performance. The Company accounts for investments in these entities under the equity method (Note 4). As of June 30, 2024, the Company has determined that the following entities are unconsolidated VIEs: 1238 Wisconsin Avenue and the Georgetown Portfolio. The Company's involvement with these entities is in the form of direct and indirect equity interests and fee arrangements. The maximum exposure to loss in these entities is limited to: (i) the amount of the Company's equity investment and (ii) debt guarantees (Note 9). The Company's aggregate investment in the unconsolidated VIEs assets was $44.6 million and $45.8 million
38
as of June 30, 2024 and December 31, 2023, respectively. The Company's aggregate investment in unconsolidated VIEs liabilities was $39.3 million and $40.1 million as of June 30, 2024 and December 31, 2023, respectively.
16. Subsequent Events
On July 3, 2024, the Company acquired a shopping center, the Walk at Highwoods Preserve, located in Tampa, Florida for approximately $30.7 million, inclusive of transaction costs.
On July 30, 2024, the Company declared a cash dividend of $0.19 per Common Share, which is payable on October 15, 2024 to stockholders of record as of September 30, 2024.
On July 30, 2024, the Company entered an agreement to sell $100 million in aggregate principal amount of senior unsecured notes in a private placement.
39
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Acadia Realty Trust (the “Trust”, collectively with its consolidated subsidiaries, the “Company”), a Maryland real estate investment trust (“REIT”), 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 June 30, 2024 and December 31, 2023, the Trust controlled approximately 96% and 95%, respectively, of the Operating Partnership as the sole general partner and is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership.
We own and operate a high-quality core real estate portfolio ("Core" or "Core Portfolio") in the nation's most dynamic retail corridors, along with an investment management platform (“Investment Management”). As part of the Investment Management platform, we have active investments through the following opportunity funds, including: 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”).
Generally, we focus on the following strategies to enhance the value of our Company and provide long-term, profitable growth:
As of June 30, 2024, we own or have an ownership interest in 199 properties held through our Core Portfolio and Investment Management platform. 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 the Investment Management platform. These properties primarily consist of street and urban retail, and suburban shopping centers. The Investment Management platform consists of investment vehicles through which our Operating Partnership and outside institutional investors invest in primarily opportunistic and value-add retail real estate. 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.
A summary of our wholly-owned and partially-owned retail properties and their physical occupancies as of June 30, 2024 is as follows:
Number of Properties
Operating Properties
Development orRedevelopment
Operating
GLA
Occupancy
Core Portfolio:
Chicago Metro
576,799
84.3
New York Metro
294,729
90.9
Los Angeles Metro
23,757
100.0
San Francisco Metro
Dallas Metro
121,386
89.3
Washington DC Metro
357,842
83.8
Boston Metro
1,050
Suburban
3,906,516
93.2
Total Core Portfolio
138
5,282,079
91.4
Acadia Share of Total Core Portfolio
4,916,634
91.8
536,055
76.8
4,637
77.6
526,390
85.8
7,763,428
92.8
99,837
Total Investment Management
48
8,930,347
91.5
Acadia Share of Total Investment Management
1,932,495
89.9
Total Core and Investment Management
186
14,212,426
Acadia Share of Total Core and Investment Management
6,849,129
91.3
SIGNIFICANT DEVELOPMENTS DURING THE SIX MONTHS ENDED JUNE 30, 2024 AND SUBSEQUENT EVENTS
We renamed our historical Funds segment as the Investment Management segment. No prior period information was recast and the designation change did not impact our condensed consolidated financial statements. Refer to Note 12.
Investments
During the six months ended June 30, 2024, we deconsolidated one Core property, two consolidated Investment Management properties and one outparcel, and one unconsolidated investment, as follows:
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In July 2024, the Company acquired a shopping center, the Walk at Highwoods Preserve, located in Tampa, Florida for $30.7 million, inclusive of transaction costs (Note 16).
Financing Activity
In April 2024, the Operating Partnership entered into a Third Amended and Restated Credit Agreement, with Bank of America, N.A., as administrative agent, to amend its existing senior unsecured credit facility (the “Amended Credit Facility”). The Amended Credit Facility provides for an increase in the existing unsecured revolving credit facility from $300.0 million to $350.0 million, which includes the capacity to issue letters of credit in an amount up to $60.0 million, and the extension of the term from June 29, 2025 to April 15, 2028, with two additional six-month extension options. The Amended Credit Facility also provides for the extension of the term on the existing $400.0 million unsecured term loan from June 29, 2026 to April 15, 2028, with two additional six-month extension options. The Amended Credit Facility has an accordion feature to increase its capacity up to $900 million at the option of the Operating Partnership, subject to customary conditions. Borrowings under the revolving credit facility and the term loan will accrue interest at a floating rate based on SOFR with margins based on leverage or credit rating.
During the six months ended June 30, 2024, we (Note 7):
Structured Financing Investments
During the six months ended June 30, 2024, we originated one Core note receivable of $7.6 million to a related party, which is collateralized by the borrower’s equity interest in various partnerships, bears interest at 12% and matures on December 31, 2025.
Common Shares
During the six months ended June 30, 2024, we sold 1,739,288 Common Shares under our ATM Program generating $29.9 million of net proceeds after related issuance costs (Note 10).
Economic and Other Considerations
In recent years, inflation levels were elevated resulting in increased costs for certain goods and services and cost of borrowing. Inflation began to decrease in the second quarter of 2023 but still remains at elevated levels compared to the years preceding 2021. Most of our leases include contractual rent escalations and 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. 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 rising 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.
In response to the rising rate of inflation, the Federal Reserve raised benchmark interest rates, resulting in an increase in the cost of borrowing, which could remain at elevated levels in the near-term and long-term. The rate hikes enacted by the Federal Reserve have had a significant impact on interest rate indexes such as 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, which qualify for, and are designated as, hedging instruments. 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.
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RESULTS OF OPERATIONS
See Note 12 in the Notes to Condensed Consolidated Financial Statements for an overview of our three reportable segments: Core Portfolio (“Core”), Investment Management (“IM”) and Structured Financing (“SF”).
Comparison of Results for the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023
The results of operations by reportable segment for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 are summarized in the table below (in millions, totals may not add due to rounding):
Three Months Ended
June 30, 2023
Increase (Decrease)
IM
SF
48.9
38.4
87.3
56.4
33.6
(7.5
4.8
(2.6
(18.0
(16.3
(34.3
(20.0
(14.0
(34.1
(2.0
2.3
0.2
Property operating expenses and real estate taxes
(14.4
(11.4
(25.8
(15.1
(10.5
(25.6
(0.7
0.9
(10.2
(10.6
(0.4
(Loss) gain on disposition of properties
(2.2
3.0
0.8
14.3
13.6
17.8
21.3
9.0
19.7
(7.0
4.6
(1.9
0.6
3.8
4.5
(2.4
(1.4
(0.3
6.2
5.9
5.4
5.0
0.4
(0.2
1.8
(4.0
(4.2
(9.9
(13.6
(23.6
(11.0
(11.1
(22.1
(1.1
2.5
1.5
2.9
5.2
1.7
13.0
(4.4
10.1
(8.2
1.2
1.6
2.8
(10.1
8.2
(1.2
1.1
0.5
(8.4
(7.8
Net income attributable to Acadia
2.7
3.9
1.4
12.3
9.3
(9.6
(7.9
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 $9.6 million for the three months ended June 30, 2024 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio decreased $7.5 million for the three months ended June 30, 2024 compared to the prior year period primarily due to the accelerated amortization of a below market lease for a bankrupt tenant in 2023.
Depreciation and amortization for our Core Portfolio decreased $2.0 million for the three months ended June 30, 2024 compared to the prior year period primarily due to the acceleration of in-place lease intangible assets for a bankrupt tenant in 2023.
Loss on disposition of property for our Core Portfolio relates to the deconsolidation of the Shops at Grand property in 2024 (Note 2).
Realized and unrealized holding (losses) gains on investments and other for our Core Portfolio decreased $4.0 million for the three months ended June 30, 2024 compared to the prior year period primarily due to a change in the mark-to-market adjustment on the Investment in Albertsons (Note 8).
Interest expense for our Core Portfolio decreased $1.1 million for the three months ended June 30, 2024 compared to the prior year period primarily due to lower average outstanding borrowings in 2024.
Investment Management (all amounts below are consolidated amounts and are not representative of our proportionate share)
The results of operations for our Investment Management segment are depicted in the table above under the headings labeled “IM.” Segment net income attributable to Acadia for Investment Management increased $1.1 million for the three months ended June 30, 2024 compared to the prior year period as a result of the changes described below.
Revenues for Investment Management increased $4.8 million for the three months ended June 30, 2024 compared to the prior year period primarily due to property acquisitions in the second half of 2023.
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Depreciation and amortization for Investment Management increased $2.3 million for the three months ended June 30, 2024 compared to the prior year period primarily due to property acquisitions in the second half of 2023.
Gain on disposition of properties for Investment Management increased $3.0 million for the three months ended June 30, 2024 compared to the prior year period due to the sale of two properties at Fund IV and an outparcel at Fund V (Note 2).
Equity in earnings (losses) of unconsolidated affiliates for Investment Management increased $6.2 million for the three months ended June 30, 2024 compared to the prior year period primarily due to the gain on sale of Paramus Plaza in 2024 (Note 4).
Interest expense for Investment Management increased $2.5 million for the three months ended June 30, 2024 compared to the prior year period primarily due to higher average interest rates in 2024.
Net (income) loss attributable to noncontrolling interests for Investment Management decreased $8.4 million for the three months ended June 30, 2024 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net income attributable to noncontrolling interests in Investment Management includes asset management fees earned by the Company of $2.4 million and $2.3 million for the three months ended June 30, 2024 and 2023, respectively.
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.”
Comparison of Results for the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023
The results of operations by reportable segment for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 are summarized in the table below (in millions, totals may not add due to rounding):
Six Months Ended
102.4
76.2
178.6
106.2
65.6
171.8
(3.8
10.6
6.8
(36.2
(33.0
(69.2
(38.7
(28.5
(67.2
(2.5
2.0
(32.3
(24.9
(57.2
(31.2
(21.0
(52.2
(19.9
(20.6
Operating income (loss)
31.7
20.1
31.8
36.3
16.0
(4.6
4.1
4.2
(4.1
5.5
5.6
10.7
9.8
3.4
25.0
28.6
(7.4
(25.0
(0.6
(27.3
(47.3
(21.7
(22.0
(43.7
(1.7
5.3
3.6
10.4
(5.8
10.3
(5.1
20.8
14.9
10.0
20.7
30.1
0.1
(5.3
24.8
(10.4
(20.7
0.3
(30.1
3.2
5.7
(1.6
(3.6
1.0
Net income (loss) attributable to Acadia
9.9
4.7
19.1
14.4
22.6
(9.2
(9.7
(17.9
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 $9.2 million for the six months ended June 30, 2024 compared to the prior year period as a result of the changes further described below.
Revenues for our Core Portfolio decreased $3.8 million for the six months ended June 30, 2024 compared to the prior year period primarily due to $7.8 million accelerated amortization of a below market lease for a bankrupt tenant in 2023, offset by $3.5 million for the recognition of a forfeited deposit within Other revenues in the Condensed Consolidated Statements of Operations for a property previously under contract for sale in 2024.
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Depreciation and amortization for our Core Portfolio decreased $2.5 million for the six months ended June 30, 2024 compared to the prior year period primarily due to the write-off of in-place lease intangible assets for a bankrupt tenant in 2023.
Property operating expenses and real estate taxes for our Core Portfolio increased $1.1 million for the six months ended June 30, 2024 compared to the prior year period primarily due to increased legal expense reserves in the current year.
Realized and unrealized holding (losses) gains on investments and other for our Core Portfolio decreased $7.4 million for the six months ended June 30, 2024 compared to the prior year period primarily due to a change in the mark-to-market adjustment on the Investment in Albertsons (Note 8).
Interest expense for our Core Portfolio decreased $1.7 million for the six months ended June 30, 2024 compared to the prior year period due to lower average outstanding borrowings in 2024.
Net income attributable to noncontrolling interests for our Core Portfolio increased $1.0 million for the six months ended June 30, 2024 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above.
The results of operations for our Investment Management segment are depicted in the table above under the headings labeled “IM.” Segment net income attributable to Acadia for Investment Management decreased $9.7 million for the six months ended June 30, 2024 compared to the prior year period as a result of the changes described below.
Revenues for Investment Management increased $10.6 million for the six months ended June 30, 2024 compared to the prior year period primarily due to (i) $9.6 million from acquisitions in 2023, and (ii) $1.7 million from new tenant lease-up within Investment Management in 2023 and 2024.
Depreciation and amortization for Investment Management increased $4.5 million for the six months ended June 30, 2024 compared to the prior year period primarily due to property acquisitions in 2023.
Property operating expenses and real estate taxes for Investment Management increased $3.9 million for the six months ended June 30, 2024 compared to the prior year period primarily due to property acquisitions in 2023 and non-recurring property operating expenses within Investment Management.
(Loss) gain on disposition of property for Investment Management increased $1.8 million for the six months ended June 30, 2024 compared to the prior year period due to the $3.0 million gain on disposition of two properties at Fund IV and an outparcel at Fund V, offset by a $1.2 million loss related to a previously disposed property (Note 2).
Equity in earnings (losses) of unconsolidated affiliates for Investment Management increased $5.5 million for the six months ended June 30, 2024 compared to the prior year period primarily due to the gain on disposition of Paramus Plaza in 2024 (Note 4).
Realized and unrealized holding (losses) gains on investments and other for the Investment Management decreased $25.0 million for the six months ended June 30, 2024 compared to the prior year period primarily due to a $28.2 million increase in dividend income from Albertsons in 2023 offset by a $2.0 million mark-to-market loss in 2023 (Note 8).
Interest expense for Investment Management increased $5.3 million for the six months ended June 30, 2024 compared to the prior year period primarily due to higher average interest rates in 2024.
Net loss attributable to redeemable noncontrolling interests for Investment Management increased $1.6 million for the six months ended June 30, 2024 compared to the prior year period due to the receipt of past due rents for a tenant in 2023.
Segment net income attributable to Acadia for Investment Management decreased $9.7 million for the six months ended June 30, 2024 compared to the prior year period as a result of the changes described below. Net loss attributable to noncontrolling interests in Investment Management includes asset management fees earned by the Company of $4.7 million and $4.8 million for the six months ended June 30, 2024 and 2023, respectively.
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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. Investment Management invests primarily in properties that typically require significant leasing and development. Given that Investment Management is primarily comprised of 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 Investment Management investments.
NOI represents property revenues less property expenses. We consider NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance, however, our method of calculating these may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):
Consolidated operating income
Add back:
(757
Less:
Above/below-market rent, straight-line rent and other adjustments (a)
(2,869
(13,088
(7,477
(15,330
Consolidated NOI
58,623
51,269
113,929
104,254
Redeemable noncontrolling interest in consolidated NOI
(1,381
(1,182
(2,422
(2,399
Noncontrolling interest in consolidated NOI
(18,322
(13,730
(35,253
(28,205
Less: Operating Partnership's interest in Investment Management NOI included above
(6,132
(4,765
(11,473
(9,802
Add: Operating Partnership's share of unconsolidated joint ventures NOI (b)
2,251
6,212
8,100
Core Portfolio NOI
35,039
35,733
70,993
71,948
46
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 (dollars in thousands):
Less properties excluded from Same-Property NOI
(2,961
(5,335
(6,887
(11,235
Same-Property NOI
32,078
30,398
64,106
60,713
Percent change from prior year period
Components of Same-Property NOI:
Same-Property Revenues
45,613
43,275
91,756
87,057
Same-Property Operating Expenses
(13,535
(12,877
(27,650
(26,344
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.
Three Months Ended June 30, 2024
Core Portfolio New and Renewal Leases
Cash Basis
Straight-Line Basis
Number of new and renewal leases executed
GLA commencing
78,816
266,667
New base rent
73.06
77.31
37.44
38.94
Expiring base rent
66.67
62.84
34.76
33.11
Percent growth in base rent
9.6
23.0
7.7
17.6
Average cost per square foot (a)
12.23
4.57
Weighted average lease term (years)
6.1
(a) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
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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 income (loss) attributable to Acadia to FFO follows (dollars in thousands, except per share data):
Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests' share)
26,291
28,248
53,378
54,692
Loss on disposition of property (net of noncontrolling interests' share)
568
843
Income attributable to Common OP Unit holders
574
306
1,368
Distributions - Preferred OP Units
84
207
246
Funds from operations attributable to Common Shareholders and Common OP Unit holders - Basic and Diluted
28,489
38,221
59,446
78,942
Funds From Operations per Share - Diluted
Basic weighted-average shares outstanding, GAAP earnings
Weighted-average OP Units outstanding
7,226,475
6,918,443
7,525,197
6,835,840
Basic weighted-average shares and OP Units outstanding, FFO
110,818,713
102,178,367
110,385,174
102,060,741
Assumed conversion of Preferred OP Units to Common Shares
319,457
463,898
Assumed conversion of LTIP units and Restricted Share Units to Common Shares
698,490
686,088
Diluted weighted-average number of Common Shares and Common OP Units outstanding, FFO
111,836,660
102,642,265
111,096,329
102,524,639
Diluted Funds from operations, per Common Share and Common OP Unit
0.25
0.37
0.54
0.77
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 in our Investment Management platform 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 six months ended June 30, 2024, we paid dividends and distributions on our Common Shares and Preferred OP Units totaling $37.5 million.
In July 2024, through Investment Management, we acquired a shopping center, the Walk at Highwoods Preserve, located in Tampa, Florida for $30.7 million, inclusive of transaction costs (Note 16).
During the six months ended June 30, 2024, we originated one Core note receivable of $7.6 million to a related party, which is secured by the borrower’s equity interest in the Renaissance Portfolio, 1238 Wisconsin Avenue, and another Georgetown property, bears interest at 12% and matures on December 31, 2025 (Note 3).
Capital Commitments
During the six months ended June 30, 2024, we made capital contributions aggregating $11.1 million to our Funds.
As of June 30, 2024, our share of the remaining capital commitments to our Funds aggregated $18.1 million as follows:
Development Activities
During the six months ended June 30, 2024, capitalized costs associated with development activities totaled $7 million (Note 2). As of June 30, 2024, we had a total of 13 consolidated projects under development or redevelopment, for which the estimated total cost to complete these projects through 2025 was $35.0 million to $61.2 million, and our estimated share was approximately $18.9 million to $33.7 million. Substantially all remaining development and redevelopment costs are discretionary, and 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, 2023.
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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
1,379,807
1,454,707
Total Debt - Variable Rate
327,851
426,380
1,881,087
(11,186
1,870,141
As of June 30, 2024, our consolidated indebtedness aggregated $1,707.7 million, excluding unamortized premium of $0.2 million and net unamortized loan costs of $12.1 million, and was collateralized by 31 properties and related tenant leases. Stated interest rates on our outstanding indebtedness ranged from 3.99% to SOFR + 3.75% with maturities that ranged from July 8, 2024 to April 15, 2035, without regard to available extension options. With respect to the debt maturing in 2024, we are actively pursuing refinancing the remaining obligations, though there can be no assurance that we can refinance such obligations on favorable terms or at all. Taking into consideration $1,188.3 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,379.8 million of the portfolio debt, or 80.8%, was fixed at a 4.74% weighted average interest rate and $327.9 million, or 19.2%%, was floating at a 8.10% weighted average interest rate as of June 30, 2024. Our variable-rate debt includes $151.2 million of debt subject to interest rate caps.
Without regard to available extension options, as of June 30, 2024, we had $211.8 million of debt maturing in 2024 at a weighted-average interest rate of 4.18%; $2.8 million of scheduled principal amortization due in the remainder of 2024; and our share of scheduled remaining 2024 principal payments and maturities on our unconsolidated debt was $59.6 million. In addition, $373.6 million of our total consolidated debt and $57.7 million of our pro-rata share of unconsolidated debt will come due by June 30, 2025. With respect to the debt maturing in 2024 and 2025, we have options to extend consolidated debt aggregating $40.0 million and $327.3 million as of June 30, 2024 and; 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, 2023.
We maintain a share repurchase program under which $122.5 million remains available as of June 30, 2024 (Note 10). We did not repurchase any shares under this program during the six months ended June 30, 2024.
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 Investment Management, (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 as of June 30, 2024 totaled $31.9 million. Our remaining sources of liquidity are described further below.
Issuance of Common Shares
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 Investment Management acquisitions through the issuance of Common Shares over extended periods employing
50
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 Investment Management acquisitions, and for general corporate purposes. The Company sold 1,739,288 Common Shares under its ATM Program during the six months ended June 30, 2024 generating $29.9 million of net proceeds after related issuance costs.
Investment Management Capital
During the six months ended June 30, 2024, Fund V called for capital contributions of $52.2 million, of which our aggregate share was $11.1 million. As of June 30, 2024, unfunded capital commitments from noncontrolling interests within Funds II, III, IV and V were $0, $1.4 million, $18.5 million and $48.3 million, respectively.
Asset Sales and Other Transactions
During the six months ended June 30, 2024, we sold 350,000 shares of Albertsons, generating net proceeds of $7.6 million. As of June 30, 2024, we held 1.1 million shares with a fair value of $21.7 million (Note 8). In addition, during the six months ended June 30, 2024, we recognized dividend income of $0.3 million (Note 8).
Structured Financing Repayments
During the six months ended June 30, 2024, the Company received full payment on a $6.0 million Core Portfolio note.
Financing and Debt
As of June 30, 2024, we had $253.6 million of capacity under existing Core Portfolio debt facilities. In addition, as of that date within our Core Portfolio and Investment Management, we had 91 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.
HISTORICAL CASH FLOW
The following table compares the historical cash flow for the six months ended June 30, 2024 with the cash flow for the six months ended June 30, 2023 (in millions, totals may not add due to rounding):
Variance
58.0
89.5
(31.5
20.0
(26.7
46.7
(48.2
(65.5
17.3
29.8
(2.7
32.5
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Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from rental revenue, and cash outflows for property operating expenses, general and administrative expenses and interest and debt expense.
Our operating activities provided $31.5 million less cash for the six months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to the $28.2 million dividend received from our investment in Albertsons in 2023.
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 provided $46.7 million more cash for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to (i) $58.7 million more cash received form the disposition of properties in 2024, (ii) $22.8 million less cash used in our investments in and advances to unconsolidated affiliates, (iii) $7.6 million more cash received from the sale of marketable securities, and (iv) $6.0 million more received from the payment of a note receivable. These sources of cash were offset by (i) $33.4 million less cash received from return of capital of unconsolidated affiliates, (ii) $7.9 million more cash used to originate a note receivable, and (iii) $6.8 million more cash used for development, construction and property improvement costs.
Financing Activities
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 used $17.3 million less cash during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily from (i) $142.1 million more cash provided by the sale of Common Shares, (ii) $13.7 million less cash distributed to noncontrolling interests, and (iii) $12.5 million more cash provided by contributions from noncontrolling interests. These increases were offset by (i) $142.6 million more cash used to repay debt, (ii) $6.8 million more used for payment of deferred financing fees, and (iii) $1.5 million more used to pay dividends.
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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 Condensed 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
4.9
7.60
Sep 2024
49.0
8.4
9.33
Crossroads Shopping Center
28.7
3.94
Oct 2024
Tri-City Plaza(b)
18.1
6.9
3.04
Frederick Crossing(b)
3.27
Dec 2024
Frederick County Square(b)
5.67
Jan 2025
650 Bald Hill Rd
3.75
Jun 2026
Renaissance Portfolio(c)
30.4
7.15
Nov 2026
840 N. Michigan
91.9
44.7
6.50
Dec 2026
3104 M Street(c)
8.50
Jan 2027
7.27
Mar 2027
La Frontera
6.11
Jun 2027
Riverdale FC
18.0
Nov 2027
Georgetown Portfolio
50.0
7.1
4.72
Dec 2027
Shoppes at South Hills(b)
5.8
5.95
Mar 2028
7.2
5.80
180.2
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of condensed 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 2023 Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Pronouncements
Reference is made to Note 1 in the Notes to Condensed Consolidated Financial Statements for information about recently issued accounting pronouncements.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information as of June 30, 2024
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 Condensed 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 June 30, 2024, we had total mortgage and other notes payable of $1,707.7 million, excluding the unamortized premium of $0.2 million and net unamortized debt issuance costs of $12.1 million, of which $1,379.8 million, or 80.8% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $327.9 million, or 19.2%, was variable-rate based upon LIBOR, SOFR or Prime rates plus certain spreads. As of June 30, 2024, we were party to 36 interest rate swaps and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $1,188.3 million and $151.2 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, 2023 — 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 June 30, 2024 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
200.1
204.9
616.8
618.6
4.4
93.7
96.2
16.9
910.6
927.5
Fund Consolidated Mortgage and Other Debt
211.8
213.7
409.7
410.9
7.3
51.7
52.1
43.4
43.9
59.4
59.6
6.0
776.0
780.2
Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)
6.7
52.9
10.5
60.9
67.0
0.7
30.0
30.7
6.4
12.4
19.5
160.7
Without regard to available extension options, in the remainder of 2024, $214.6 million of our total consolidated debt and $59.6 million of our pro-rata share of unconsolidated outstanding debt will become due. In addition, $412.9 million of our total consolidated debt and $10.5 million of our pro-rata share of unconsolidated debt will become due in 2025. As it relates to the aforementioned maturing debt in 2024 and 2025, we
have options to extend consolidated debt aggregating $40.0 million and $327.3 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 $6.9 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $2.4 million. Interest expense on our variable-rate debt of $327.9 million, net of variable to fixed-rate swap agreements currently in effect, as of June 30, 2024, would increase $3.3 million if corresponding rate indices increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.0 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 June 30, 2024, the fair value of our total consolidated outstanding debt would decrease by approximately $7.1 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would increase by approximately $6.6 million.
As of June 30, 2024, and December 31, 2023, we had consolidated notes receivable of $126.7 million and $124.9 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 June 30, 2024, the fair value of our total outstanding notes receivable would decrease by approximately $0.7 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding notes receivable would increase by approximately $0.7 million.
Summarized Information as of December 31, 2023
As of December 31, 2023, we had total mortgage and other notes payable of $1,881.1 million, excluding the unamortized premium of $0.2 million and unamortized debt issuance costs of $11.2 million, of which $1,454.7 million, or 77.3%, was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $426.4 million, or 22.7%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2023, 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 $1,249.8 million and $151.4 million of LIBOR or SOFR-based variable-rate debt, respectively.
Interest expense on our variable-rate debt of $426.4 million as of December 31, 2023, would have increased $4.3 million if corresponding rate indices increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2023, the fair value of our total outstanding debt would have decreased by approximately $6.9 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 $6.6 million.
Changes in Market Risk Exposures from December 31, 2023 to June 30, 2024
Our interest rate risk exposure from December 31, 2023, to June 30, 2024, has decreased on an absolute basis, as the $426.4 million of variable-rate debt as of December 31, 2023 has decreased to $327.9 million as of June 30, 2024. As a percentage of our overall debt, our interest rate exposure has decreased as our variable-rate debt accounted for 22.7% of our consolidated debt as of December 31, 2023 compared to 19.2% as of June 30, 2024.
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 June 30, 2024, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of June 30, 2024, 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, 2023.
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.
Trading Arrangements
During the three months ended June 30, 2024, none of our officers or trustees (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated, or modified any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement (as defined in Item 408 of Regulation S-K).
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 April 15, 2024, by and among Acadia Realty Limited Partnership, Acadia Realty Trust, 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 Securities, Inc. and PNC Capital Markets LLC, as joint lead arrangers, and the lenders and letter of credit issuers party thereto.
Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 16, 2024
10.2*†
Form of Long-Term Incentive Plan Award Agreement (Time- and Performance- Based) (SVP/EVP)
Filed herewith
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)
* Management contract or compensation plan or arrangement.
† This document was previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 30, 2024, filed with the SEC on April 30, 2024, and has been amended to correct a scrivener’s error.
57
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: July 31, 2024