ITEM 1. BUSINESS
GENERAL
Acadia Realty Trust (the "Company"), formerly Mark Centers Trust, was formed on March 4, 1993 as a Maryland Real Estate Investment Trust ("REIT") to continue the business of its predecessor company, Mark Development Group ("MDG"). The Company is a fully integrated, self-managed and self-administered equity REIT focused primarily on the ownership, acquisition, redevelopment and management of neighborhood and community shopping centers, and multi-family properties. As of March 22, 1999, the Company operates fifty-seven properties, which it owns or has an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, three enclosed malls, one mixed-use (retail/office) property, five multi-family properties and one redevelopment property located in the Eastern and Midwestern regions of the United States.
All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), previously Mark Centers Limited Partnership, and its majority owned subsidiaries. As of December 31, 1998, the Company controlled 69% of the Operating Partnership as the sole general partner.
Concurrently with the consummation of the Company's initial public offering on June 1, 1993, the Operating Partnership acquired thirty-one properties from Marvin L. Slomowitz, the founder of MDG and the Company's former principal shareholder (the "Former Principal Shareholder"), or from his affiliates, in exchange for Operating Partnership units ("OP Units") which are exchangeable on a one for one basis into the Company's common shares of beneficial interest ("Common Shares"). The properties had been developed directly or indirectly by the Former Principal Shareholder from 1964 through 1992 and were operated under MDG's direction.
RECENT DEVELOPMENTS
On August 12, 1998 the Company completed the transactions contemplated by the Contribution and Share Purchase Agreement dated April 15, 1998 (the "RDC Transaction"). In connection with the RDC Transaction, the Operating Partnership acquired (i) fee title or all, or substantially all, of the ownership interests in twelve shopping centers, five multi-family properties and one redevelopment property, (ii) a 49% interest in one shopping center, (iii) certain third party management contracts, and (iv) certain promissory notes from real estate investment partnerships and related entities, which are not under common control, in which RDC Capital, Inc.("RDC") serves as general partner or in another similar management capacity, for approximately 11.1 million OP Units and approximately 2.0 million Common Shares valued at $97.2 million. In addition, the Company assumed mortgage debt aggregating $154.2 million and incurred other capitalized transaction costs of $5.8 million resulting in an aggregate purchase price of $257.2 million. Pursuant to the terms of the RDC Transaction, the recipients of the OP Units and Common Shares are restricted, subject to certain limited exceptions, from selling or otherwise transferring such OP Units or Common Shares prior to the first anniversary of the closing of the RDC Transaction.
As part of the RDC Transaction, the Company issued approximately 13.3 million Common Shares to three real estate investment limited partnerships (collectively "RDC Funds"), in which affiliates of RDC serve as general partner, in exchange for $100.0 million. The proceeds from the issuance of Common Shares were used as follows:
Repayment of mortgage notes payable $ 70.5 Repayment of note payable to Former Principal Shareholder 3.0 Transaction costs allocable to stock issuance 4.1 Transaction costs allocable to RDC properties, RDC management contracts and contributed notes 4.5 Payment of liabilities assumed in connection with acquisition of RDC properties, RDC management contracts and contributed notes 1.3 Prepayment and assumption fees on mortgage notes 0.4 Contractual payments to Company management personnel pursuant to severance and change in control obligations and other RDC Transaction expenses 2.2 Additions to working capital 14.0 ------ $100.0 ======
As a result of the RDC Transaction, the RDC Funds owned 63% of the Common Shares in the Company. Each of the RDC Funds has appointed each of its partners as such RDC Funds' proxy with respect to the Common Shares to which such partner would be entitled upon a dissolution of such RDC Fund and a distribution of such Common Shares among the partners. Other real estate investment partnerships and related entities in which RDC or its affiliates serve as general partner or in another similar management capacity, owned 93% of the minority interest in the Operating Partnership as limited partners. Collectively, after giving effect to the conversion of their OP Units, which are generally exchangeable for Common Shares on a one-for-one basis, these entities and the RDC Funds beneficially owned 72% of the Common Shares as of the closing of the RDC Transaction.
The Operating Partnership is also obligated to acquire from an RDC affiliate its 25% ownership interest in a shopping center currently under construction. Upon completion of construction and attainment of certain occupancy levels, the Operating Partnership will issue OP Units valued at $5.5 million. In addition, the Operating Partnership is obligated to issue additional OP Units valued at $2.8 million upon the completion of certain improvements and the commencement of rental payments from a designated tenant at one of the properties acquired in the RDC Transaction.
Concurrent with the closing of the RDC Transaction, the Company appointed Ross Dworman and Kenneth F. Bernstein, the Chief Executive Officer and Chief Operating Officer, respectively, of RDC, as the Chairman and Chief Executive Officer, and President, respectively, of the Company. Messrs. Dworman and Bernstein, together with two designees of RDC, were appointed to the Board of Trustees.
Following the completion of the RDC Transaction, the Company changed its name from Mark Centers Trust to Acadia Realty Trust and the name of the Operating Partnership was changed from Mark Centers Limited Partnership to Acadia Realty Limited Partnership.
BUSINESS OBJECTIVES AND OPERATING STRATEGY
The Company's primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating potential for capital appreciation to enhance investor returns. The Company's acquisition program focuses on acquiring sub-performing neighborhood and community shopping centers that are well-located and creating significant value through retenanting, timely capital improvements and property redevelopment. In considering acquisitions, the Company focuses on quality shopping centers located in the Northeast, Mid-Atlantic, Southeast and Midwest regions. The Company considers both single assets and portfolios in its acquisition program. Furthermore, the Company may, from time to time, consider acquiring multi-family apartment complexes as well as engaging in joint ventures related to property acquisition and development.
The Company typically holds its properties for long-term investment. As such, it continuously reviews the existing portfolio and implements programs to renovate and modernize targeted centers to enhance the property's market position. This in turn strengthens the competitive position of the leasing program to attract and retain quality tenants, increasing cash flow and consequently property value. Upon evaluating the portfolio, the Company also periodically identifies certain properties for disposition and redeploys the capital to existing centers or acquisitions with greater potential for capital appreciation.
Operating functions such as leasing, property management, construction, finance and legal ("property management") are provided by Company personnel, providing for fully integrated property management and development. Property management's involvement in acquisitions is an essential component to the acquisition program. By incorporating the property management group in the acquisition process, acquisitions are appropriately priced giving effect to each asset's specific risks and returns. Also, because of property management's involvement with, and corresponding understanding of, the acquisition process, transition time is minimized and management can immediately execute an asset's strategic plan.
RETAIL PROPERTY ACQUISITIONS IN CONNECTION WITH THE RDC TRANSACTION
As a result of the RDC Transaction, the Company significantly expanded its retail portfolio. By increasing the size and geographic diversity of its portfolio, the Company anticipates that it will be less susceptible to regional economic downturns. The Company also diversified the mix of its retail tenants thus allowing it to better manage the risks associated with tenant delinquencies due to bankruptcy and other conditions that have historically impacted tenants' ability to meet their leasing obligations. Furthermore, by increasing the number of locations for certain tenants as well as the addition of experienced management and leasing staff following the RDC Transaction, the Company has strengthened the quality of its existing tenant relationships.
The Company acquired the fee title or an interest in 13 retail centers and one redevelopment property. The acquired retail properties comprise an aggregate of 2.2 million square feet of gross leasable area ("GLA") and average 171,000 square feet of GLA. As of December 31, 1998, these properties were 93% leased to 215 tenants. The properties are located primarily throughout the Northeast, Mid-Atlantic and Midwest regions of the continental United States and are generally well-established, anchored community and neighborhood shopping centers situated in infill, densely populated areas offering attractive trade area demographics. The properties are leased to a variety of national, regional and credit tenants, as well as a large number of local enterprises.
The redevelopment property consists of a 40,000 square foot retail and residential building located in Greenwich, Connecticut. The building, which is currently vacant, is being completely refurbished, and when fully completed (anticipated for late 1999) will consist of approximately 17,000 square feet of retail space and 21 apartments (approximately 15,000 square feet). Approximately 12,300 square feet of retail space has been pre-leased to a national tenant who is expected to commence paying rent in the second quarter of 1999.
OTHER RETAIL PROPERTY ACQUISITIONS
On June 1, 1998, the Company acquired for $1.4 million the building and other improvements constituting the Blackman Plaza, from the Former Principal Shareholder. The 121,000 square foot shopping center is located in Wilkes-Barre, Pennsylvania and is anchored by a 105,000 square foot Kmart. The Company was already the owner of the land. Payment for the building was made with a portion of the proceeds from the financing with Credit Suisse First Boston Mortgage Capital LLC ("CS First Boston").
On February 24, 1999, the Company acquired the Mad River Station, a 154,000 square foot shopping center located in Dayton, Ohio, for $11.5 million. The Center is anchored by a 33,000 square foot Babies `R Us and a 25,000 square foot Office Depot. The Company assumed $7.7 million in mortgage debt and funded the remaining purchase price from working capital.
PROPERTY DEVELOPMENT
The Company has substantially completed the redevelopment and expansion of a 100,000 square foot retail center located in Rocky Hill, Connecticut. The center, which was also acquired in the RDC Transaction, is anchored by a 42,000 square foot Waldbaum's (A&P) Supermarket that expanded to 65,000 square feet in 1999 and an adjacent 93,000 square foot Walmart (formerly Caldors) which is not owned by the Company. The renovation also included a new parking lot and exterior facade.
The Company completed the installation of Walmart and Circuit City in approximately 121,000 and 33,000 square feet, respectively, in the Ledgewood Mall in Ledgewood, New Jersey. Both tenants commenced paying rent during the first quarter of 1999.
In addition, the Company completed the expansion of two properties during 1998. An expansion at the Mark Plaza in Edwardsville, Pennsylvania was completed
during April 1998 with the installation of a 53,000 square foot Redner's Supermarket. Additionally, a 32,000 square foot expansion at the Manahawkin Village Shopping Center was completed during November 1998 with the installation of a ten-screen Hoyt's Theater.
MULTI-FAMILY PROPERTY ACQUISIITONS
In connection with the RDC Transaction, the Company also acquired five multi-family properties located in the Mid-Atlantic and Midwest regions. The properties average 455 units and as of December 31, 1998, had an average occupancy rate of 92%.
DISPOSITION OF PROPERTIES
In connection with the Company's ongoing program of evaluating its property portfolio and optimizing the portfolio for both cash flow and future capital appreciation, the Company has sold two centers and has contracted to sell a third property. On December 30, 1998 the Company sold the Normandale Mall, located in Montgomery, Alabama for a sales price of $2.4 million. On February 1, 1999, the Company sold the Searstown Mall, located in Titusville, Florida for a sales price of $3.3 million. Furthermore, the Company has entered into a contract to sell the Auburn Plaza, located in Auburn, Maine, although there can be no assurance that this transaction will be completed.
FINANCING STRATEGY
The Company intends to continue to finance acquisitions and property redevelopment with sources of capital determined by management to be the most appropriate based on, among other factors, availability, pricing and other commercial and financial terms. The sources of capital may include bank and other institutional borrowing, the issuance of equity and/or debt securities and the sale of properties. The Company has significantly improved its access to debt financing by reducing its debt to total market capitalization following the de-leveraging of a portion of its portfolio in connection with the RDC Transaction. See Item 7A for a discussion on the Company's market risk exposure related to its mortgage debt.
FINANCIAL INFORMATION ABOUT MARKET SEGMENTS
The Company has two reportable segments: retail properties and multi-family properties. The accounting policies of the segments are the same as
those described in the notes to the consolidated financial statements appearing in Item 8 of this Annual Report on Form 10-K. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain non-recurring items. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with retail versus residential tenants. The Company's does not have any foreign operations. See the consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for certain information on industry segments as required by Item 1.
CORPORATE HEADQUARTERS AND EMPLOYEES
The Company's executive offices are located at 20 Soundview Marketplace, Port Washington, New York 11050, and its telephone number is (516)767-8830. The Company has an internet Web address at www.acadiarealty.com. The Company has 158 employees of which 35 are located at the executive offices, 9 at the New York City corporate office, 21 at the Pennsylvania regional office and the remaining property management personnel are located on-site at the Company's properties.
COMPETITION
There are numerous shopping facilities that compete with the Company's properties in attracting retailers to lease space. In addition, there are numerous commercial developers and real estate companies that compete with the Company in seeking land for development, properties for acquisition and tenants for their properties. Also, retailers at the Company's properties face increasing competition from outlet malls, discount shopping clubs, internet commerce, direct mail and telemarketing.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS - ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. The Company believes that it is in compliance in all material respects with all Federal,
state and local ordinances and regulations regarding hazardous or toxic substances.
Upon conducting environmental site inspections in connection with obtaining financing from Morgan Stanley Mortgage Capital, Inc. ("Morgan Stanley") during fiscal 1996, soil contamination was identified at the Troy Plaza in Troy, New York. The Company has entered into a voluntary remedial agreement with the State of New York for remediation of this property. Environmental consultants estimate that the remaining cost of such remediation will be approximately $50,000 for which the Company has recorded a reserve as of December 31, 1998 and for which Morgan Stanley holds $228,000 in escrow to be released upon final environmental remediation at this property.
Management is not aware of any other environmental liability that they believe would have a material adverse impact on the Company's financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all properties were sold, disposed of or abandoned.
RETAIL ENVIRONMENT
Seasonality
The retail environment is seasonal in nature, particularly in the fourth calendar quarter when retail sales are typically at their highest levels. As such, contingent rents based on tenants achieving certain sales targets are generally higher in the fourth quarter when such targets are typically met. Tenant Bankruptcies
Tenant Bankruptcies
During 1998, certain tenants experienced financial difficulties and several have filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy laws ("Chapter 11"). Following are the significant bankruptcies to have occurred during the period January 1, 1998 through March 22, 1999.
On January 2, 1998, Bruno's Inc. filed for protection under Chapter 11. Bruno's was a tenant at one location in the Company's portfolio comprising approximately 48,000 square feet. For the fiscal years ended December 31, 1998 and 1997, rental revenues (including expense reimbursements) from this tenant totaled $64,000 and $231,000, respectively. The lease was rejected March
18, 1998 and the Company has since installed Office Depot, Inc. in 30,000 square feet of this space. This new tenant, who is paying higher rent per square foot, commenced paying rent during the second quarter of 1998.
On January 5, 1998, HomePlace Stores, Inc. filed for protection under Chapter 11. Homeplace Stores was a tenant at one location in the Company's portfolio comprising approximately 48,000 square feet. For the fiscal years ended December 31, 1998 and 1997 rental revenues (including expenses reimbursements) for this tenant totaled $246,000 and $614,000, respectively. The lease was rejected and the Company is currently engaged in releasing efforts for this space.
On March 1, 1999, Penn Traffic filed for protection under Chapter 11. Penn Traffic, which operates grocery stores under the names "Bi-Lo Foods" and "P&C Foods", is a tenant at seven locations in the Company's portfolio comprising approximately 308,000 square feet. Rental revenues (including expense reimbursements) from Penn Traffic for each of the years ended December 31, 1998 and 1997 totaled $2.4 million. The current status of these seven leases are as follows:
Number of locations Status ------------------- ------ 2 Assigned to other supermarket operators but subject to bankruptcy court approval at one location
2 Stores are open, Penn Traffic is paying its rental obligations but leases have not yet been affirmed
2 Stores are closed. Lease was rejected at one location and terminated effective March 1, 1999 at the other location. Rent obligations have ended and the Company is actively engaged in securing a replacement tenant
1 Lease expires April 30, 1999. Store is closed and it is anticipated that the tenant will not renew the lease
On March 17, 1999, Service Merchandise filed for protection under Chapter 11. Service Merchandise is a lessee at one location in the Company's portfolio under a ground lease. For the fiscal years ended December 31, 1998 and 1997 rental revenues (including expenses reimbursements) for this tenant totaled $209,000 and $223,000, respectively. The lease has been neither confirmed nor rejected.
TAX STATUS - QUALIFICATION AS REAL ESTATE INVESTMENT TRUST
The Company has and currently transacts its affairs so as to qualify as, and has elected to be treated as, a real estate investment trust under sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Code, a real estate investment trust that meets applicable requirements is not subject to Federal income tax to the extent it distributes at least 95% of its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal income tax on its taxable income.
ITEM 2.
ITEM 2. PROPERTIES
SHOPPING CENTER PROPERTIES
As of December 31, 1998, the Company owned and operated 52 shopping centers (including one property which is under redevelopment, a mixed-use center and a shopping center in which the Company owns a 49% interest) totaling approximately 9.2 million square feet of gross leasable area ("GLA"). The Company's shopping centers, which are located in 15 states, are generally well-established, anchored community and neighborhood shopping centers. The shopping centers are diverse in size, ranging from approximately 45,000 to 511,000 square feet with an average size of 180,000 square feet. The Company's portfolio was approximately 90% occupied at December 31, 1998. The Company's shopping centers are typically anchored by a national or regional discount department store and/or a supermarket or drugstore.
The Company had 746 leases (including the mixed-use and joint venture properties) as of December 31, 1998 of which approximately 44% were with national or regional tenants. A substantial portion of the income from the properties consists of rent received under long term leases. Most of these leases provide for the payment of fixed minimum rent monthly in advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. Certain of the tenant leases permit tenants to exclude some or all of these expenses from their rental obligations. Minimum rents and expense reimbursements accounted for approximately 84% of the Company's total revenues for the year ended December 31, 1998.
As of December 31, 1998, approximately 53% of the Company's existing leases also provided for the payment of percentage rents either in addition to or in place of minimum rents. These arrangements generally provide for payment to the Company of a certain percentage of a tenant's gross sales in excess of a stipulated annual amount. Percentage rents accounted for approximately 4% of the total 1998 revenues of the Company.
Eight of the Company's shopping center properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to the Company. The Company pays rent for the use of the land and is responsible for all costs and expenses associated with the building and improvements.
No individual property contributed in excess of 10% of the Company's total revenues for the year ended December 31, 1998. For the years ended December 31, 1997 and 1996, greater than 10% of the Company's total rents were derived from leases at the Northwood Centre, a mixed-use (retail/office) property (See "Major Tenants" in Item 2).
The following sets forth more specific information with respect to each of the Company's shopping center, mixed-use and joint venture properties at December 31, 1998:
Notes:
(1) Does not include space leased but not yet occupied by the tenant. (2) Tenant GLA comprises at least 10% of GLA for the center (3) This property is currently vacant and is being redeveloped. When completed it is anticipated that this property will consist of approximately 17,000 square feet of retail space and 21 apartments (approximately 15,000 square feet) (4) Includes a 92,500 square foot non-owned Walmart (formerly Caldors) (5) This property is currently under contract for sale (6) The Company is ground lessee under long-term ground leases (7) The tenant is currently operating under Chapter 11 of the United States Bankruptcy laws and has neither affirmed nor rejected the lease (8) During the term of the lease, Bradlees has the right of first refusal in the event that the Company sells all or a portion of the Crescent Plaza giving it the right to purchase on the same terms as a bona fide offer from a third party (9) Leased premise was under construction as of December 31, 1998 with rent commencing in 1999. The space related to these tenants is not included as occupied as of December 31, 1998 (10) Includes space leased for which rent is being paid but which is not presently occupied (11) The Company holds a fee interest in a portion of the Dunmore Plaza and an equitable interest in the land on the remaining portion. The fee for this remaining portion is held by an industrial development authority and the equitable interest in the building on such remaining portion is held by an unrelated entity. The Company receives and accounts for most of its income from this property as percentage rent (12) This signed lease is for the former BiLo space (13) This property was sold in 1999 (14) The Company has a 49% investment in this property (15) The Company has signed a lease with A&P to construct a 48,000 free-standing building at this site subject to township approval (16) Ames acquired all the Hills stores in the Company's portfolio during 1998 and is reconfiguring such to Ames stores during 1999 (17) This lease was terminated effective March 1, 1999 (18) This lease has been assigned, subject to approval by the bankruptcy court, to another grocery store operator (19) The tenant rejected this lease during March 1999
Major Tenants
No individual retail tenant accounted for more than 7.3% of total revenues for the year ended December 31, 1998 or 11% of total leased GLA as of December 31, 1998. For the years ended December 31, 1997 and 1996, 11.3% and 10.8%, respectively, of the Company's total rents were derived from leases with Florida State agencies. The following table sets forth certain information for the 25 largest retail tenants based upon minimum rents in place as of December 31, 1998:
TOP 25 TABLE
(1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 1998.
(2) Total GLA and annualized base rent for the Company's retail properties, excluding mixed-use and joint venture properties.
(3) Ames acquired all the Hills stores in the Company's portfolio in 1998 and is reconfiguring such to Ames stores during 1999.
(4) The tenant has filed for protection under Chapter 11. See discussion of this tenant under "Retail Environment -- Tenant Bankruptcies" in Item 2.
(5) Does not include a Sears store at a property sold in February 1999.
(6) Does not include leased space which was still under construction at the Ledgewood Mall as of December 31, 1998.
In 1998, approximately 8.5% of the Company's total revenue was derived from current leases of office space and specialized computer facilities with two agencies of the State of Florida at the Northwood Centre in Tallahassee, Florida; the Florida Department of Health and Rehabilitative Services (5.3%) and the Florida Department of Business Professional Regulation (3.2%). During 1998, the State of Florida renewed leases for approximately 59,000 and 123,000 square feet with lease terms of five and seven years, respectively. Leases with these Florida agencies contain customary conditions, required under Florida law, permitting state agency tenants to cancel their leases upon six months' notice in the event that state-owned office facilities in the same county become available. These leases do not provide for early termination penalties. There are currently state-owned facilities available in the county and the State of Florida periodically reassesses its options with respect to such leases including those of the Company. The Company has been advised by the Florida Department of Health and Rehabilitative Services, which recently renewed a 59,000 square foot lease at the Northwood Centre, that it is evaluating the consolidation of its offices into State facilities. The Company would be adversely affected in the event that the State of Florida exercises its right to cancel the lease for its newly renewed space as well as any other space it currently leases.
Lease Expirations
The following table shows scheduled lease expirations for retail tenants in place as of December 31, 1998, assuming that none of the tenants exercise renewal options. The table does not include leases related to the Company's mixed-use and joint venture properties:
(GLA and rent in thousands)
(1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 1998. The table does not include activity related to the Company's mixed-use or joint venture properties
GEOGRAPHIC CONCENTRATIONS
The following table summarizes the Company's retail properties (including mixed-use and joint venture properties) by region as of December 31, 1998:
(1) Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations due after December 31, 1998.
MULTI-FAMILY PROPERTIES
The Company owns five multi-family properties located in the Mid-Atlantic and Midwest regions. The properties average 455 units and as of December 31, 1998, had an average occupancy rate of 92%. The following sets forth more specific information with respect to each of the Company's multi-family properties at December 31, 1998:
ITEM 3
ITEM 3 LEGAL PROCEEDINGS
On November 20, 1995, Jack Wertheimer, the former President of the Company, filed a complaint against the Company, its Trustees, including the Former Principal Shareholder, and the Company's former in-house General Counsel and former Chief Financial Officer in the United States District Court for the Middle District of Pennsylvania. The complaint, which was filed in connection with the termination of Mr. Wertheimer's employment, included many of the allegations raised in a state court proceeding commenced by Mr. Wertheimer in November 1994. The Federal court complaint also included a civil RICO action in which Mr. Wertheimer alleged that the Board of Trustees of the Company conspired with Mr. Slomowitz to terminate Mr. Wertheimer's employment as part of Mr. Slomowitz's breach of his duty of good faith and fair dealing. Further, Mr. Wertheimer alleged that the above defendants engaged in securities fraud in connection with the initial public offering and that Mr. Slomowitz defrauded or overcharged the Company in corporate transactions. The Federal complaint sought treble damages under RICO, as well as damages arising from Mr. Wertheimer's alleged termination of employment, invasion of privacy, intentional infliction of emotional distress, fraud and misrepresentation. The Company and all defendants filed motions to dismiss the RICO and tort claims which the court, on December 9, 1996, granted in part and denied in part. Specifically, the court dismissed Mr. Wertheimer's claims for wrongful discharge, fraud and negligence misrepresentation, but declined to dismiss the remainder of the claims at that time. On January 23, 1997, the defendants filed an answer to Mr. Wertheimer's complaint. In the answer, the defendants denied all allegations of wrongdoing, and also filed counterclaims against Mr. Wertheimer alleging Mr. Wertheimer made material misrepresentations in connection with his hiring and breached his employment contract and fiduciary duties to the Company.
On December 31, 1998, the Company and Mr. Wertheimer settled this litigation and entered into an agreement whereby the Company paid Mr. Wertheimer $1.0 million on December 31, 1998 and agreed to pay him (i)$900,000 on April 1, 1999 and (ii) five annual payments of $200,000 commencing January 10, 2000. Pursuant to this agreement, the Company has established a $1.0 million escrow fund, which will be released upon the Company obtaining a standby letter of credit, to collateralize these future payments.
The Company is involved in other various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company's management and counsel are of the opinion that, when such litigation is resolved, the Company's resulting liability, if any, will not have a significant effect on the Company's consolidated financial position.
ITEM 4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 1998.
PART II
ITEM 5
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information
The following table shows, for the period indicated, the high and low sales price for the Shares as reported on the New York Stock Exchange (the "NYSE"), and cash dividends paid during the two years ended December 31, 1998 and 1997. Dividend Quarter Ended High Low Per Share - -------------- ------ ---- ---------
March 31, 1998 9 3/16 8 3/4 $ -- June 30, 1998 8 7/8 7 7/16 -- September 30, 1998 7 5/8 5 3/16 -- December 31, 1998 6 1/4 4 15/16 --
March 31, 1997 11 3/4 10 1/8 $.36 June 30, 1997 10 7/8 8 7/8 .20 September 30, 1997 9 9/16 8 15/16 .20 December 31, 1997 9 7/16 8 3/4 --
At March 22, 1999, there were 197 holders of record of the Company's Common Shares.
(b) Dividends
The Company paid no dividends during the year ended December 31, 1998. On February 4, 1999, the Board of Trustees of the Company approved and declared a quarterly dividend for the quarter ended March 31, 1999 of $0.12 per Common Share. The dividend is to be paid on April 15, 1999 to the shareholders of record as of March 31, 1999.
The Company's cash flow is affected by a number of factors, including the revenues received from rental properties, the operating expenses of the Company, the interest expense on its borrowings, the ability of lessees to meet their obligations to the Company and unanticipated capital expenditures. Future dividends paid by the Company will be at the discretion of the Trustees and will depend on the actual cash flows of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustees deem relevant.
ITEM 6
ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth, on a historical basis, selected financial data for the Company. This information should be read in conjunction with the audited consolidated financial statements of the Company and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Annual Report on Form 10-K.
(1) Activity for the year ended December 31, 1998 includes the operations of the properties acquired in the RDC Transaction from August 12, 1998 through December 31, 1998.
(2) Non-recurring charges represent expenses incurred related to the RDC Transaction including payments made to certain officers and key employees pursuant to change in control provisions of employment contracts, severance paid to the Former Principal Shareholder, retention bonuses for certain employees and transaction-related consulting and professional fees.
(3) Due to a net loss for the years ended December 31, 1998, 1997 and 1996, the weighted average number of shares outstanding on a diluted basis is not presented as the inclusion of additional shares is anti-dilutive.
(4) The Company, along with most industry analysts, consider funds from operations ("FFO") as defined by the National Association of Real Estate Investment Trusts ("NAREIT") as an appropriate supplemental measure of operating performance. However, FFO does not represent cash generated from operations as defined by generally accepted accounting principles and is not indicative of cash available to fund cash needs. It should not be considered as an alternative to net income for the purpose of evaluating the Company's performance or to cash flows as a measure of liquidity. Generally, NAREIT defines FFO as net income (loss) before gains (losses) on sales of property, non-recurring charges and extraordinary items, adjusted for certain non-cash charges, primarily depreciation and amortization of capitalized leasing costs.
(5) Includes weighted average OP Units as follows: 1998 - 5,252,815, 1997 and 1996 - 1,623,000, 1995 - 1,621,937 and 1994 - 1,621,000.
ITEM 7
ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements of the Company (including the related notes thereto) appearing elsewhere in this Form 10-K. Certain statements made in this report may constitute "forward-looking statements" within the meaning of the federal securities laws. Such statements are inherently subject to risk and uncertainties which may cause the actual results to differ materially from the future results implied by such forward-looking statements. Factors which might cause such differences include general economic conditions, adverse changes in the real estate markets in general and in the geographic regions in which the Company's properties are located, changes in interest rates, potential bankruptcy of tenants and environmental requirements.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1998 ("1998") to the year ended December 31, 1997 ("1997")
The following comparison references the effect of the properties acquired on August 12, 1998 as a result of the RDC Transaction (the "RDC Properties").
Total revenues increased $15.3 million, or 34%, to $59.8 million in 1998 compared to $44.5 million in 1997.
Minimum rents increased $13.2 million, or 39%, to $46.9 million for 1998 compared to $33.7 million for 1997. $12.6 million, or 95% of this increase was attributable to the RDC Properties. The remaining increase was primarily a result of increases at the Mark Plaza and Ledgewood Mall.
Percentage rents decreased $532,000, or 17%, to $2.7 million for 1998 compared to $3.2 million for 1997 primarily as a result of the impact from the Company adopting the Emerging Issue Task Force ("EITF") Issue No. 98-9 "Accounting for Contingent Rent in Interim Financial Periods" as of April 1, 1998.
Expense reimbursements of $8.6 million for 1998, which represent the pass-through of certain property expenses to the tenants, increased $2.0 million, or 31%, from $6.6 million for 1997 of which $2.1 million of the increase was a result of the RDC Properties.
Other income increased $511,000, or 50%, to $1.5 million for 1998 compared to $1.0 million for 1997. $240,000 of this increase was attributable to third party management fees earned related to certain management contracts acquired in connection with the RDC Transaction. The remaining increase was primarily attributable to the RDC Properties and an increase in interest earning assets in 1998.
Total 1998 operating expenses increased $15.7 million, or 51%, to $46.5 million compared to $30.8 million in 1997.
Property operating expenses increased $5.2 million, or 57%, to $14.2 million for 1998 from $9.0 million for 1997. $4.1 million, or 79% of this increase was attributable to the RDC Properties. The remaining increase was primarily due to (i) the recording of reserves of $250,000 against unbilled rents receivable ("straight-line rent") for certain leases with Penn Traffic, which filed for Chapter 11 protection under bankruptcy law in March of 1999, (ii) an increase in estimated claims of $450,000 related to the Company's property liability insurance policies offset by (iii) the reversal of a $245,000 reserve for environmental remediation costs for the Cloud Springs Plaza in 1997 following notification from the Georgia Department of Natural Resources that contamination exceeding a reportable quantity had not occurred.
Real estate taxes increased $1.8 million, or 32%, to $7.5 million for 1998 from $5.7 million for 1997 of which $1.7 million of the increase was due to the RDC Properties.
Depreciation and amortization increased $2.0 million, or 15%, to $15.8 million for 1998 from $13.8 million for 1997 of which $1.9 million of the increase was attributable to the RDC Properties.
General and administrative expense increased $2.0 million, or 88%, to $4.4 million for 1998 from $2.4 million for 1997 which was primarily attributable to additional staffing and administrative costs following the RDC Transaction.
Non-recurring charges of $2.2 million in 1998 were related primarily to payments made to certain officers and key employees pursuant to change in control provisions of employment contracts, severance paid to the Former
Principal Shareholder, retention bonuses for certain employees and RDC Transaction-related consulting and professional fees.
Settlement of litigation of $2.4 million in 1998 resulted from the agreement between the Company and its former President whereby the Company paid $1.0 million in 1998 and recorded a liability of $1.4 million based on future contractual payments to be made commencing April 1999 through January 2004.
Equity in earnings of unconsolidated partnerships in 1998 are a result of the 49% interest in the Crossroads Shopping Center acquired by the Company in the RDC Transacton.
The adjustment of carrying value of property held for sale represents a 1998 non-cash charge of $11.6 million to write-down three properties to their estimated net realizable value pursuant to a disposition plan. One of these properties was sold in 1998 for which an additional loss of $175,000 was recognized. A second property was sold in February 1999 and the Company has entered into a contract in March 1999 to sell the third property.
Interest expense increased $2.9 million, or 19%, to $18.3 million in 1998, compared to $15.4 million in 1997 of which $2.8 of the increase was attributable to the RDC Properties.
The $707,000 extraordinary loss is a result of the write-off of deferred financing fees as a result of the repayment of the related mortgage debt.
Comparison of the year ended December 31, 1997 ("1997") to the year ended December 31, 1996 ("1996")
Total revenue increased $702,000, or 2%, to $44.5 million in 1997 compared to $43.8 million in 1996.
In total, minimum rents of $33.7 million for 1997 were essentially unchanged from 1996. Increases in minimum rents of $757,000 and $102,000 were achieved in 1997 following the completion of the development of Phase I of the Union Plaza and completion of the initial lease-up of the Pittston Plaza following its construction in 1996, respectively. A $680,000 increase in minimum rents was realized throughout the remaining portfolio, except at those properties as noted below, primarily from rents received following the installation of new tenants in excess of rents lost due to vacating tenants. These increases were, however, offset by declines in minimum rent for 1997 of
(i)$1.1 million at the Ledgewood Mall and Auburn Plaza following the loss of two anchor tenants during 1996 as well as certain remaining tenants at these two centers paying percentage rent in lieu of minimum rent pursuant to anchor cotenancy requirements, (ii)$338,000 at the Normandale Mall primarily as a result of the State of Alabama Department of Public Health vacating its leased space following the expiration of its leases in April 1997 and (iii)$155,000 following the sale of the Newberry Plaza in March 1997.
Percentage rents increased $388,000, or 14%, to $3.2 million for 1997 compared to $2.8 million for 1996 primarily as a result of tenants paying percentage rent in lieu of minimum rents at the Ledgewood Mall and Auburn Plaza as previously discussed.
Expense reimbursements of $6.6 million for 1997, which represent the pass-through of certain property expenses to the tenants, were essentially unchanged from 1996. Increases relating to the pass-through of higher real estate taxes in 1997 were offset by a decline in expense reimbursements as a result of a decrease in other property operating expenses in 1997, and by a decrease in expense reimbursements following the loss of anchor tenants at the Ledgewood Mall and Auburn Plaza as previously discussed.
Other income increased $267,000, or 36%, to $1.0 million for 1997 compared to $747,000 for 1996 primarily as a result of an increase in interest earned on mortgage escrows in connection with financings with Morgan Stanley Mortgage Capital, Inc. and Nomura Asset Capital Corporation.
Total 1997 operating expenses decreased $443,000, or 1%, to $30.8 million compared to $31.3 million in 1996.
Property operating expenses decreased $759,000, or 8%, to $9.0 million for 1997 from $9.8 million for 1996, primarily due to the establishment of a $425,000 reserve in 1996 for estimated environmental remediation costs and related consulting fees related to two properties and a decrease in winter related costs due to the comparatively mild winter experienced in the Northeast during 1997.
Real estate taxes increased $406,000, or 8%, to $5.7 million for 1997 from $5.3 million for 1996 primarily due to the expiration of a ten-year development abatement at the Greenridge Plaza and increases in assessed property values as a result of recent development and expansion activities.
Depreciation and amortization increased $370,000, or 3%, to $13.8 million for 1997 from $13.4 million for 1996 primarily due to an increase in depreciation expense following the completion of the development of Phase I of the Union Plaza in October 1996.
General and administrative expense decreased $460,000, or 16%, to $2.4 million for 1997 from $2.8 million for 1996 primarily due to the write-off during 1996 of non-recurring costs totaling $492,000 as a result of the Company's decision to terminate certain acquisition and development activities.
Net interest expense increased $2.7 million, or 21%, to $15.4 million in 1997, compared to $12.7 million in 1996 due to higher borrowing levels primarily associated with development and tenant replacement activities.
The loss before minority interest for 1997 was $1.8 million, representing an increased loss of $1.0 million compared to the loss before minority interest of $764,000 for 1996 due to the above items, as well as a $392,000 loss in 1996 on the reduction in the carrying value of certain property held for sale and $190,000 in extraordinary expense for 1996 related to certain 1996 refinancings.
LIQUIDITY AND CAPITAL RESOURCES
Acquisition of Properties and Related Transactions
On August 12, 1998 the Company completed the RDC Transaction. In connection with the RDC Transaction, the Operating Partnership acquired (i) fee title or all, or substantially all, of the ownership interests in twelve shopping centers, five multi-family properties and one redevelopment property, (ii) a 49% interest in one shopping center, (iii) certain third party management contracts, and (iv) certain promissory notes from real estate investment partnerships and related entities, which are not under common control, in which RDC serves as general partner or in another similar management capacity, for approximately 11.1 million OP Units and approximately 2.0 million Common Shares valued at $97.2 million. In addition, the Company assumed mortgage debt aggregating $154.2 million and incurred other capitalized transaction costs of $5.8 million resulting in an aggregate purchase price of $257.2 million.
As part of the RDC Transaction, the Company issued approximately 13.3 million Common Shares to the RDC Funds in exchange for $100.0 million. The proceeds from the issuance of Common Shares were used as follows:
Repayment of mortgage notes payable $ 70.5 Repayment of note payable to Former Principal Shareholder 3.0 Transaction costs allocable to stock issuance 4.1 Transaction costs allocable to RDC properties, RDC management contracts and contributed notes 4.5 Payment of liabilities assumed in connection with acquisition of RDC properties, RDC management contracts and contributed notes 1.3 Prepayment and assumption fees on mortgage notes 0.4 Contractual payments to Company management personnel pursuant to severance and change in control obligations and other RDC Transaction expenses 2.2 Additions to working capital 14.0 ------ $100.0 ======
On February 24, 1999, the Company purchased a 154,000 square foot community shopping center in Dayton, Ohio for $11.5 million. The center which is 97% leased is anchored by Babies `R Us, Office Depot and Pier One Imports. The Company assumed an existing mortgage of $7.7 million and funded the remaining $3.8 of the acquisition cost from working capital.
Financing and Debt
On January 28, 1998, the Company completed a closing on a construction loan with Royal Bank of Pennsylvania in the maximum amount of $3.5 million. The loan, which was secured by one of the Company's properties, was retired on August 12, 1998 using the proceeds from the RDC Transaction.
On June 1, 1998, the Company closed on $20.7 million in short-term financing with Credit Suisse First Boston Mortgage Capital LLC ("CS First Boston"). Approximately $9.9 million was used to refinance existing debt and pay
for transaction costs, $1.0 million was used to acquire the building and other improvements constituting the Blackman Plaza, $326,000 was deposited in escrows, $5.5 million was available for working capital, and the remaining $4.0 million was unfunded. At closing, the Company paid $1.5 million from this available working capital to Pharmhouse Corp., a tenant at the Ledgewood Mall which had obtained an injunction against the installation of Walmart at the mall based on certain exclusive use provisions contained in Pharmhouse Corp.'s lease. As a result of this settlement, the Company proceeded with the installation of Walmart in approximately 120,000 square feet at the property. Proceeds from the RDC Transaction were used to repay this loan in full on August 12, 1998.
In connection with the properties acquired in the RDC Transaction, the Company assumed $154.2 million of mortgage debt, of which $48.6 million was retired using a portion of the proceeds from the issuance of Common Shares. Mortgage debt totaling $21.9 million, which was outstanding prior to the RDC Transaction, was also retired using a portion of the proceeds from the issuance of Common Shares.
As of December 31, 1998, the Company had an aggregate $52.5 million of borrowings from Sun America Life Insurance Company which was assumed in connection with the RDC Transaction. Approximately $43.8 million of these loans are cross-collateralized by five of the Company's properties, bear interest at a fixed rate of 7.75%, require monthly payments of interest and principal amortized over 25 years and mature in January 2001. The remaining loan in the amount of $8.7 million is collateralized by one of the Company's properties, bears interest at 7.75%, matures June 1999 and requires principal amortization payments over a 25 year period. Each of the loans contain yield maintenance provisions.
The Company had other fixed rate mortgage debt assumed in connection with the RDC Transaction with two separate lenders aggregating $22.5 million as of December 31, 1998. These loans, which are secured by two of the Company's properties, bear interest ranging from 7.73% to 8.32%, require monthly payments of interest and principal amortized over 25 years and mature between December 1999 and March 2004.
As of December 31, 1998, the Company also had variable rate mortgage debt assumed in connection with the RDC Transaction with three separate lenders
aggregating $30.0 million. These loans, which are secured by three of the Company's properties, require monthly payment of interest based on LIBOR plus spreads ranging from 1.25% to 1.78% or the lender's commercial paper rate plus 2.75% and mature between January 2002 and December 2002. At December 31, 1998, the all-in rates ranged from 6.88% to 8.02%.
As of December 31, 1998 interest on the Company's mortgage indebtedness ranged from 6.9% to 9.1% with maturities that ranged from June 1999 to March 2022. Of the total outstanding debt, $247.5 million, or 89%, was carried at fixed interest rates with a weighted average of 8.4% and $30.1 million, or 11%, was carried at variable rates with a weighted average of 7.3%. Of the total outstanding debt, $108.0 million will become due by 2000, with scheduled maturities of $13.1 million at a weighted average interest rate of 7.7% in 1999 and $94.9 million with a weighted average interest rate of 8.5% in 2000. As the Company does not anticipate having sufficient cash on hand to repay such indebtedness, it will need to refinance this indebtedness or select other alternatives based on market conditions at that time.
Property Development and Expansion
In connection with the RDC Transaction, the Company acquired a 39,744 square foot retail and residential building located in Greenwich, Connecticut. The building, which is currently vacant, is being completely refurbished, and when fully completed (anticipated for late 1999) will consist of approximately 17,000 square feet of retail space and 21 apartments (approximately 15,000 square feet). Approximately 12,300 square feet of retail space has been pre-leased to a national tenant who is expected to commence paying rent in the second quarter of 1999. As of December 31, 1998 costs incurred to date were $12.1 million. The Company expects that an additional $3.4 million will be required to complete this project.
The Company has substantially completed the redevelopment and expansion of a 100,252 square foot retail center located in Rocky Hill, Connecticut. The center, which was also acquired in the RDC Transaction, is anchored by a 41,665 square foot Waldbaum's (A&P) Supermarket that expanded to 64,665 square feet in 1999 and an adjacent 92,500 square foot Walmart (formerly Caldors) which is not owned by the Company. The renovation also included a new parking lot and exterior facade. The Company expects that $2.1 million will be required to complete this project.
The Company completed the installation of Walmart and Circuit City in approximately 121,000 and 33,000 square feet, respectively, in the Ledgewood Mall in Ledgewood, New Jersey. Both tenants commenced paying rent during the first quarter of 1999. Remaining costs estimated to be paid for these projects total $4.0 million.
For the remaining portfolio, the Company currently estimates that capital outlays of approximately $5.1 million will be required in 1999 for tenant improvements, related renovations and other property improvements related to executed leases.
Sources of capital for funding property development, property expansion and renovation and future property acquisitions are expected to be obtained from additional debt financings, additional equity offerings and from sales of existing properties. As of December 31, 1998, the Company also had cash available of $15.2 million as well as 12 properties which are currently unencumbered and therefore available as potential collateral for future borrowings.
The Company has generated additional working capital to fund the foregoing activities from the sale of the Normandale Mall in Montgomery, Alabama in December 1998 and the Searstown Mall in Titusville, Florida in February of 1999 for total net proceeds of $4.9 million after the related selling costs.
The Company anticipates that cash flow from operating activities will continue to provide adequate capital for all debt service payments, recurring capital expenditures and REIT distribution requirements.
The Company, along with most industry analysts, consider funds from operations("FFO") as defined by the National Association of Real Estate Investment Trusts ("NAREIT")as an appropriate supplemental measure of operating performance. However, FFO does not represent cash generated from operations as defined by generally accepted accounting principles and is not indicative of cash available to fund cash needs. It should not be considered as an alternative to net income for the purpose of evaluating the Company's performance or to cash flows as a measure of liquidity. Generally, NAREIT defines FFO as net income (loss) before gains (losses) on sales of property, non-recurring charges and extraordinary items, adjusted for certain non-cash charges, primarily depreciation, amortization of capitalized leasing costs and equity income (loss) from joint ventures, and the addition of the proportionate share of FFO of unconsolidated joint ventures determined on a consistent basis.
ACADIA REALTY TRUST AND SUBSIDIARIES FUNDS FROM OPERATIONS For the Years Ended December 31, 1998 and 1997 (In thousands except per share data) For the year ended December 31, 1998 1997 Revenue Minimum rents(a) $47,156 $33,360 Percentage rents 2,651 3,183 Expense reimbursements 8,967 6,632 Other 1,557 1,014 ------- ------- Total revenue 60,331 44,189 ------- ------- Expenses Property operating(b) 13,775 9,113 Real estate taxes 7,758 5,691 General and administrative 4,398 2,339 ------- ------- Total operating expenses 25,931 17,143 ------- ------- Operating income 34,400 27,046 Interest expense 18,803 15,444 Amortization of deferred financing costs 674 567 Depreciation of non-real estate assets 203 208 ------- ------- Funds from operations $14,720 $10,827 ======= ======= Funds from operations per share (c) $ 0.72 $ 1.06 ======= =======
Reconciliation of funds from operations to net loss
Funds from operations above $ 14,720 $ 10,827
Depreciation of real estate and amortization of leasing costs (15,156) (12,993) Straight-line rents and related write-offs (net) 353 176 Loss on sale of property (175) (12) Adjustment of carrying value of property held for sale (11,560) -- Non-recurring RDC Transaction related charges (2,249) -- Settlement of litigation (2,358) -- Adjustment (reserve) for environmental remediation costs (88) 245 Extraordinary item, write-off of deferred financing costs (707) -- Minority interest 3,348 217 Other non-cash adjustments (26) (24) -------- -------- Net loss $(13,898) $ (1,564) ======== ======== Net loss per share - basic and diluted (d) $ (0.91) $ (0.18) ======== ========
(a) Excludes income from straight-lining of rents. (b) Represents all expenses other than depreciation, amortization, write-off of unbilled rent receivables recognized on a straight-line basis, the non-cash charge for compensation expense related to the Company's restricted share plan and certain non-recurring expenses. (c) Assumes full conversion of 11,184,143 and 1,623,000 OP Units into Common Shares of the Company for the years ended December 31, 1998 and 1997, respectively, for a total weighted average of Common Shares and OP Units of 20,458,777 and 10,174,930, respectively. (d) Net loss per share (basic and diluted) is computed based on the weighted average number of shares outstanding for the years ended December 31, 1998 and 1997 of 15,205,962 and 8,551,930, respectively.
HISTORICAL CASH FLOW The following discussion of historical cash flow compares the Company's cash flow for the year ended December 31, 1998 ("1998") with the Company's cash flow for the year ended December 31, 1997 ("1997").
Net cash provided by operating activities decreased from $13.2 million for 1997 to $12.2 million for 1998. This variance was primarily attributable to the payment of non-recurring expenses in connection with the RDC Transaction offset by changes in operating assets and liabilities.
Investing activities used $24.8 million during 1998, representing a $14.3 million increase from $10.5 million of cash used during 1997, which was primarily a result of increased expenditures for real estate and improvements associated primarily with the Company's retenanting, expansion and development activities.
Net cash provided by financing activities of $26.5 million increased $31.9 million compared to $5.4 million used during 1997. The increase resulted primarily from $95.9 million of net proceeds from the issuance of Common Shares and a $9.6 million reduction in dividends and distributions paid in 1998. This was partially offset primarily by additional cash of $65.7 million used in 1998 for the repayment of debt and a $6.0 million decrease in cash provided by additional borrowings.
INFLATION
The Company's long-term leases contain provisions designed to mitigate the adverse impact of inflation on the Company's net income. Such provisions include clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. Such escalation clauses are often related to increases in the consumer price index or similar inflation indexes. In addition, many of the Company's leases are for terms of less than ten years, which permits the Company to seek to increase rents upon re-rental at market rates if rents are below the then existing market rates. Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"), which is required to be adopted in years beginning after June 15, 1999. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
YEAR 2000 COMPLIANCE
The year 2000 ("Y2K") problem refers to computer applications using only the last two digits to refer to a year rather than all four digits. As a result, these applications could fail or create erroneous results if they recognize "00" as the year 1900 rather than year 2000. The Company has taken Y2K initiatives in three general areas which represent the areas that could have an impact on the Company: information technology systems, non-information technology systems and third party issues. The following is a summary of these initiatives:
Information technology and related costs: The Company's information technology systems generally consist of file servers, workstations, operating systems and applications which are all purchased systems. The Company's assessment and testing of these systems has revealed that they are Y2K compliant. Furthermore, during 1998, the Company completed the installation of additional hardware and software (purchased systems)related to its accounting systems which are Y2K compliant as well. These hardware and accounting software upgrade and conversions are being executed under maintenance and support agreements with vendors. The total cost of the accounting conversion was approximately $200,000.
Non-information technology and related costs: Non-information technology consists mainly of facilities management systems such as telephone, utility and security systems for its properties. The Company is in the process of identifying date sensitive systems and equipment including HVAC units, telephones, security systems and alarms, fire and flood warning systems and general office systems at its properties. Assessment and testing of these systems is approximately 50% complete and is expected to be completed by no later than the second quarter of 1999. The identification and remediation of systems at the properties is being accomplished by Company personnel with the assistance of consultants, for which both costs are being recorded as normal operating expense. Based on preliminary assessment the cost of any upgrades or replacement is not expected to be significant.
Third parties and related costs: The Company has begun assessment of major third parties' Y2K readiness including tenants, contractors and key suppliers of outsourced services including, property maintenance, stock transfer, debt servicing, banking collection and disbursement, payroll and benefits. Some of these third parties are publicly traded corporations subject to disclosure requirements for which the Company currently monitors Y2K disclosures in SEC filings. The majority of the Company's private vendors are small suppliers that the Company believes can manually execute their business and are readily replaceable. Management also believes there is no material risk of being unable to procure necessary supplies and services. The Company has requested all significant vendors and tenants to complete Y2K questionnaires and to date has not received any response from such third parties indicating that they have a significant Y2K problem. Third party assessment is approximately 50% complete and expected to be completed by the second quarter of 1999. The assessment of third party readiness is being conducted by Company personnel whose costs are recorded as normal operating expenses. The Company is not yet in a position to estimate the cost of third party compliance issues to the Company, but has no reason to believe that such costs will be material.
Risks: The principal risk to the Company relating to the implementation of its accounting system hardware and software upgrades is failure to correctly bill tenants by December 31, 1999 and pay invoices when due. Management believes it has adequate resources, or could obtain the needed resources, to manually bill tenants and pay bills until the systems become operational.
The principal risks to the Company relating to non-information systems at the properties are failure to identify time-sensitive systems and inability to find an appropriate replacement system. The Company believes that adequate replacement components or new systems are available at reasonable prices and are in good supply. The Company also believes that adequate time and resources are available to remediate these areas as needed.
The principal risks to the Company in its relationship with third parties are failure of third party systems used to conduct business such as: disruption of tenant operations at the properties; banks being unable to process receipts and disbursements; vendors being unable to supply needed materials and services to the Company's properties; and processing of outsourced employee payroll. Based on Y2K compliance work done to date, the Company has no reason to believe that key tenants, banks and suppliers will not be Y2K compliant in all material respects or cannot be replaced within an acceptable timeframe.
Contingency plans: The Company intends to deal with contingency planning during the second quarter of 1999 after the results of the above assessments and related remediation are known.
The Company's description of its Y2K compliance issue is based upon information obtained by management through evaluations of internal business systems and tenant and vendor compliance efforts. No assurance can be given that the Company will be able to address the Y2K issues for all its systems in a timely manner or that it will not encounter unexpected difficulties or significant expenses relating to adequately addressing the Y2K issue. If the Company or the major tenants or vendors with whom the Company does business fail to address their major issues, the Company's operating results or financial position could be materially adversely affected.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is to changes in interest rates related to the Company's mortgage debt. See the consolidated financial statements and notes thereto included in Item 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in items 14(a)(1) and 14(a)(2) hereof are incorporated herein by reference.
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on June 16, 1999, to be filed pursuant to Regulation 14A.
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on June 16 1999, to be filed pursuant to Regulation 14A.
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on June 16, 1999, to be filed pursuant to Regulation 14A.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders presently scheduled to be held on June 16, 1999, to be filed pursuant to Regulation 14A.
PART IV ITEM 14
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AMD REPORTS ON FORM 8-K
(a) 1. Financial Statements - Form 10-K The following consolidated financial Report Page information is included as a separate section of this annual report on Form 10-K
ACADIA REALTY TRUST INDEX OF FINANCIAL STATEMENTS Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements
2. Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule.
3. Exhibits
* Constitutes a compensatory plan or arrangement required to be filed as an exhibit to this Form.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1998
Date of Report (Date of Earliest Event Reported) Item Reported Date Filed - ------------------ ------------- ---------- August 12, 1998 The consummation October 20, 1998 and closing of the (Amended) RDC Transaction
December 31, 1998 Settlement agreement January 5, 1999 between the Company and Jack Wertheimer
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
ACADIA REALTY TRUST (Registrant)
By: /s/ Ross Dworman ---------------------------- Chairman and Chief Executive Officer
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/Ross Dworman Chairman, March 30, 1999 - --------------------------- Chief Executive (Ross Dworman) Officer and Trustee (Principal Executive Officer)
/s/Kenneth F.Bernstein President and March 30, 1999 - --------------------------- Trustee (Kenneth F.Bernstein)
/s/Perry S. Kamerman Senior Vice President March 30, 1999 - --------------------------- of Finance (Principal (Perry S. Kamerman) Financial and Accounting Officer)
/s/Martin L. Edelman Trustee March 30, 1999 - --------------------------- (Martin L. Edelman, Esq.)
/s/Gregory A. White Trustee March 30, 1999 - --------------------------- (Gregory A. white)
/s/Marvin J. Levine Trustee March 30, 1999 - --------------------------- (Marvin J. Levine, Esq)
/s/Lawrence J. Longua Trustee March 30, 1999 - --------------------------- (Lawrence J. Longua)
/s/Marvin L. Slomowitz Trustee March 30, 1999 - --------------------------- (Marvin L. Slomowitz)
EXHIBIT INDEX
The following is an index to all exhibits filed with the Annual Report on Form 10-K other than those incorporated by reference herein:
Exhibit Description Page Number
10.1a First, Second and Third Amendments to the Agreement of Limited Partnership of the Operating Partnership
10.31 Severance and Consulting Agreement For Marvin L. Slomowitz
10.33 Employment agreement between the Company and Ross Dworman
10.34 Employment agreement between the Company and Kenneth F. Bernstein
21 List of Subsidiaries of Acadia Realty Trust
23 Consent of Independent Auditors to Form S-3 and Form S-8
27 Financial Data Schedule (EDGAR filing only)
ACADIA REALTY TRUST AND SUBSIDIARIES
I. ACADIA REALTY TRUST
Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Schedule III - Real Estate and Accumulated Depreciation
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Acadia Realty Trust
We have audited the accompanying consolidated balance sheets of Acadia Realty Trust (a Maryland Trust) and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acadia Realty Trust and subsidiaries as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP New York, New York March 15, 1999
Part I. Financial Information Item 1. Financial Statements
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
December 31, 1998 1997 ASSETS Real estate Land $ 76,136 $ 30,855 Buildings and improvements 452,300 274,165 Properties under development 22,813 6,668 -------- -------- 551,249 311,688 Less: accumulated depreciation 87,202 83,326 -------- -------- Net real estate 464,047 228,362 Property held for sale 7,073 -- Cash and cash equivalents 15,183 1,287 Cash in escrow 12,650 7,906 Investments in unconsolidated partnerships 7,516 -- Rents receivable, net 6,006 4,802 Prepaid expenses 2,797 1,241 Due from related parties -- 177 Deferred charges, net 11,461 9,710 Other assets 1,779 1,015 -------- -------- $528,512 $254,500 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable $277,561 $183,943 Accounts payable and accrued expenses 10,673 7,553 Due to related parties 176 -- Note payable to Former Principal Shareholder -- 3,050 Other liabilities 3,817 1,910 -------- -------- Total liabilities 292,227 196,456 -------- -------- Minority interest in Operating Partnership 79,344 9,244 Minority interests in majority owned partnerships 2,350 -- -------- -------- Total minority interests 81,694 9,244 -------- -------- Shareholders' equity: Common shares, $.001 par value, authorized 100,000,000 and 50,000,000 shares, respectively, issued and outstanding 25,419,215 and 8,554,177 shares, respectively 25 9 Additional paid-in capital 170,746 51,073 Deficit (16,180) (2,282) -------- -------- Total shareholders' equity 154,591 48,800 -------- -------- $528,512 $254,500 ======== ======== See accompanying notes
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year ended December 31, 1998 1997 1996 ---- ---- ---- Revenues Minimum rents $ 46,940 $ 33,669 $ 33,695 Percentage rents 2,651 3,183 2,795 Expense reimbursements 8,655 6,632 6,559 Other 1,525 1,014 747 -------- -------- -------- Total revenues 59,771 44,498 43,796 -------- -------- -------- Operating Expenses Property operating 14,182 9,013 9,772 Real estate taxes 7,536 5,691 5,285 Depreciation and amortization 15,795 13,768 13,398 General and administrative 4,409 2,351 2,811 Non-recurring charges 2,249 -- -- Settlement of litigation 2,358 -- -- -------- -------- -------- Total operating expenses 46,529 30,823 31,266 -------- -------- -------- Operating income 13,242 13,675 12,530 Equity in earnings of un- consolidated partnerships 256 -- -- (Loss) gain on sale of property (175) (12) 21 Adjustment of carrying value of property held for sale (11,560) -- (392) Interest expense (18,302) (15,444) (12,733) -------- -------- -------- Loss before extraordinary item and minority interest (16,539) (1,781) (574) Extraordinary item - loss on early extinguishment of debt (707) -- (190) Minority interest in Operating Partnership 3,348 217 40 -------- -------- -------- Net loss $(13,898) $ (1,564) $ (724) ======== ======== ========
Net loss per Common Share: Loss before extraordinary item $ (.86) $ (.18) $ (.06) Extraordinary item (.05) -- (.02) -------- -------- -------- Net loss per Common Share $ (.91) $ (.18) $ (.08) ======== ======== ========
See accompanying notes
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share amounts)
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts)
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts)
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except per share amounts)
In connection with the exercise of the Company's options to acquire and develop certain properties and the subsequent transactions as a result of certain resolutions with the Former Principal Shareholder, the following assets and liabilities were recorded:
See accompanying notes
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Acadia Realty Trust (the "Company"), formerly known as Mark Centers Trust, is a fully integrated and self-managed real estate investment trust ("REIT") focused primarily on the ownership, acquisition, redevelopment and management of neighborhood and community shopping centers, and multi-family properties.
All of the Company's assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the "Operating Partnership"), formerly known as Mark Centers Limited Partnership, and its majority owned subsidiaries. As of December 31, 1998, the Company controlled 69% of the Operating Partnership as the sole general partner.
As of December 31, 1998, the Company operated fifty-seven properties, which it owned or had an ownership interest in, consisting of forty-seven neighborhood and community shopping centers (two of which were held for sale as of December 31, 1998), three enclosed malls, one mixed use (retail/office) properties, five multi-family properties and one redevelopment property located in the Eastern and Midwestern regions of the United States.
Principles of Consolidation The consolidated financial statements include the consolidated accounts of the Company and its majority owned subsidiaries, including the Operating Partnership. Non-controlling investments in partnerships are accounted for under the equity method of accounting as the Company exercises significant influence.
Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Acquisition of Properties and Related Transactions On August 12, 1998 the Company completed the transactions contemplated by the Contribution and Share Purchase Agreement dated April 15, 1998 (the "RDC Transaction") involving affiliates of RDC Capital, Inc. ("RDC"). In connection with the RDC Transaction, the Operating Partnership acquired (i) fee title to or all, or substantially all, of the ownership interests in twelve shopping centers, five multi-family properties and one redevelopment property, (ii) a 49% interest in one shopping center, (iii) certain third party management contracts, and (iv) certain promissory notes from real estate investment partnerships and related entities, which are not under common control, in which RDC serves as general partner or in another similar management capacity, for approximately 11.1 million Operating Partnership units ("OP Units") and approximately 2.0 million common shares of beneficial interest ("Common Shares") valued at $97,217. In addition, the Company assumed mortgage debt aggregating $154,234 and incurred other capitalized transaction costs of $5,757 resulting in an aggregate purchase price of $257,208. Pursuant to the terms of the RDC Transaction, the recipients of the OP Units and Common Shares are restricted, subject to certain limited exceptions, from selling or otherwise transferring such OP Units or Common Shares prior to the first anniversary of the closing of the RDC Transaction.
As part of the RDC Transaction, the Company issued approximately 13.3 million Common Shares to three real estate investment limited partnerships (collectively "RDC Funds"), in which affiliates of RDC serve as general partner, in exchange for $100,000. The proceeds from the issuance of Common Shares were used as follows:
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Acquisition of Properties and Related Transactions, continued
Repayment of mortgage notes payable $ 70,509 Repayment of notes payable to Former Principal Shareholder 3,030 Transaction costs allocable to stock issuance 4,077 Transaction costs allocable to RDC properties, RDC management contracts and contributed notes 4,474 Payment of liabilities assumed in connection with acquisition of RDC properties, RDC management contracts and contributed notes 1,283 Prepayment and assumption fees on mortgage notes 371 Contractual payments to Company management personnel pursuant to severance and change in control obligations and other RDC Transaction expenses 2,249 Additions to working capital 14,007 -------- $100,000 ========
As a result of the RDC Transaction, the RDC Funds owned 63% of the Common Shares in the Company. Each of the RDC Funds has appointed each of its partners as such RDC Funds' proxy with respect to the Common Shares to which such partner would be entitled upon a dissolution of such RDC Fund and a distribution of such Common Shares among the partners. Other real estate investment partnerships and related entities in which RDC or its affiliates serve as general partner or in another similar management capacity, owned 93% of the minority interest in the Operating Partnership as limited partners. Collectively, after giving effect to the conversion of their OP Units, which are generally exchangeable for Common Shares on a one-for-one basis, these entities and the RDC Funds beneficially owned 72% of the Common Shares as of the closing of the RDC Transaction.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
The Company has accounted for the RDC Transaction as (i) a purchase of properties and other related assets in exchange for OP Units and Common Shares and the assumption of certain mortgage debt and other liabilities using the purchase method of accounting and (ii) an issuance of Common Shares for cash. Accordingly, the accompanying consolidated financial statements include the operations of the properties acquired in the RDC Transaction from August 12, 1998 through December 31, 1998 (note 18).
The Operating Partnership is also obligated to acquire from an RDC affiliate its 25% ownership interest in a shopping center currently under construction. Upon completion of construction and attainment of certain occupancy levels, the Operating Partnership will issue OP Units valued at $5,500. In addition, the Operating Partnership is obligated to issue additional OP Units valued at $2,750 upon the completion of certain improvements and the commencement of rental payments from a designated tenant at one of the properties acquired in the RDC Transaction.
Concurrent with the closing of the RDC Transaction, the Company appointed Ross Dworman and Kenneth F. Bernstein, the Chief Executive Officer and Chief Operating Officer, respectively, of RDC, as the Chairman and Chief Executive Officer, and President, respectively, of the Company. Messrs. Dworman and Bernstein, together with two designees of RDC, were appointed to the Board of Trustees.
Following the completion of the RDC Transaction, the Company changed its name from Mark Centers Trust to Acadia Realty Trust and the name of the Operating Partnership was changed from Mark Centers Limited Partnership to Acadia Realty Limited Partnership.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Properties Real estate assets are stated at cost less accumulated depreciation. Such carrying amounts are adjusted, if necessary, to reflect any impairment in the value of the assets. Expenditures for acquisition, development construction and improvement of properties, as well as significant renovations are capitalized. Interest costs are capitalized until construction is substantially complete. Depreciation is computed on the straight-line method over estimated useful lives of thirty to forty years for buildings and the shorter of the useful life or lease term of improvements, furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred.
Adjustment to Carrying Value of Property Following the RDC Transaction, management adopted a plan to dispose of three under-performing properties (the Normandale Mall, Searstown Mall and Auburn Plaza). As a result, the Company recorded a non-cash charge of $11,560 to write-down these properties to their estimated net realizable value as the anticipated sales proceeds (net of selling costs) were expected to be insufficient to recover the associated carrying values. On December 30, 1998, the Company completed the sale of the Normandale Mall for $2,350 as part of this plan. As of December 31, 1998 two properties were listed with independent brokers and were being actively marketed for sale. One of these properties was sold in 1999 (note 19).
Deferred Costs Fees and costs incurred in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. Fees and costs incurred in connection with obtaining financing have been deferred and are being amortized over the term of the related debt obligation.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Revenue Recognition Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the term of the respective leases. As of December 31, 1998 and 1997, unbilled rents receivable relating to straight-lining of rents were $2,163 and $1,652, respectively.
Percentage rents are recognized in accordance with the Emerging Issue Task Force ("EITF") of the Financial Accounting Standards Board Issue No. 98-9 "Accounting for Contingent Rent in Interim Financial Periods" which requires the lessor to defer income recognition for contingent rents in interim periods until the specified target, or in the case of percentage rent, the tenant sales breakpoint, is met. The Company adopted this EITF consensus on a prospective basis during the quarter ended June 30, 1998. Prior to this, the Company had accrued percentage rents in interim periods based on historical tenant sales.
Reimbursements from tenants for real estate taxes, insurance and other property operating expenses are recognized as revenue in the period the expenses are incurred.
An allowance for doubtful accounts has been provided against certain tenant accounts receivable which are estimated to be uncollectible. Rents receivable at December 31, 1998 and 1997 are shown net of an allowance for doubtful accounts of $1,854 and $972, respectively.
Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Cash in Escrow Cash in escrow consists principally of cash held for real estate taxes, property maintenance, insurance, lease renewals, environmental remediation, and minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements, as well as amounts funded for certain legal settlement amounts (note 15).
Minority Interest Minority interest represents the limited partners' interest of 11,184,143 and 1,623,000 OP Units in the Operating Partnership at December 31, 1998 and 1997, respectively. In addition at December 31, 1998, minority interests also include an aggregate amount of $2,350 representing interests held by third parties in four of the properties acquired in the RDC Transaction in which the Company has a majority ownership position.
Non-Recurring Charges In connection with the RDC Transaction, the Company incurred non-recurring costs of $2,249 related primarily to payments made to certain officers and key employees pursuant to change in control provisions of employment contracts, severance paid to the Former Principal Shareholder (note 6), retention bonuses for certain employees and transaction-related consulting and professional fees.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Income Taxes The Company has made an election to be taxed, and believes it qualifies as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A REIT will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes at least 95% of its taxable income to its shareholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes for the Company in the accompanying consolidated financial statements. The Company is subject to state income or franchise taxes in certain states in which some of its properties are located. These state taxes, which in total are not significant, are included in general and administrative expenses in the accompanying consolidated financial statements.
Earnings Per Common Share For the years ended December 31, 1998, 1997 and 1996, basic earnings per share was determined by dividing the net applicable loss to common shareholders for the year by the weighted average number of Common Shares outstanding during each year consistent with the Financial Accounting Standards Board Statement No. 128. The weighted average number of shares outstanding for the years ended December 31, 1998, 1997 and 1996 were 15,205,962, 8,551,930 and 8,546,553, respectively.
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted into Common Shares or resulted in the issuance of Common Shares that then shared in the earnings of the Company. For the years ended December 31, 1998, 1997 and 1996 no additional shares were reflected as the impact would be anti-dilutive due to the net loss in such years.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"), which is required to be adopted in years beginning after June 15, 1999. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
Reclassifications Certain 1997 and 1996 amounts were reclassified to conform with the 1998 presentation.
2. Segment Reporting In June,1997 the Financial Accounting Standards Board issued Statement No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related Information", which is effective for financial statements issued for periods beginning after December 15, 1997. SFAS 131 requires disclosures about segments of an enterprise and related information regarding the different types of business activities in which an enterprise engages and the different economic environments in which it operates
The Company has two reportable segments: retail properties and multi-family properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. The reportable segments are managed separately due to the differing nature of the leases and property operations associated with the retail versus residential tenants. All the multi-family units were acquired in 1998 as part of the RDC transaction. The following table sets forth certain segment information for the Company as of and for the years ended December 31, 1998, 1997 and 1996 (does not include unconsolidated partnerships):
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
3. Deferred Charges
Deferred charges consist of the following as of December 31, 1998 and 1997:
1998 1997 ------- ------- Deferred financing costs $ 6,624 $ 6,382 Deferred leasing and other costs 10,882 8,054 ------- ------- 17,506 14,436 Accumulated amortization (6,045) (4,726) ------- ------- $11,461 $ 9,710 ======= =======
4. Mortgage Loans
Mortgage Notes Payable
At December 31, 1998, mortgage notes payable aggregated $277,561 and were collateralized by 43 properties and related tenant leases. Interest rates ranged from 6.88% to 9.11%. Mortgage payments are due in monthly installments of principal and/or interest and mature on various dates through 2022. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with certain affirmative and negative covenants, including the maintenance of certain debt service coverage and leverage ratios. Additionally, the Former Principal Shareholder has personally quaranteed the repayment of mortgage loans with an aggregate balance of $41,000 at December 31, 1998 without consideration from the Company.
In connection with the properties acquired in the RDC Transaction, the Company assumed $154,234 of mortgage debt, of which $48,615 was retired using a portion of the proceeds from the issuance of Common Shares. Mortgage debt totaling $21,894, which was outstanding prior to the RDC Transaction, was also retired using a portion of the proceeds from the issuance of Common Shares.
ACADIA REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands)
4. Mortgage Loans, continued
The following table summarizes the Company's mortgage indebtedness as of December 31, 1998 and 1997:
ACADIA REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands)
4. Mortgage Loans, continued
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
4. Mortgage Loans, continued
The scheduled principal repayments of all mortgage indebtedness as of December 31, 1998 are as follows:
1999 $ 16,406 2000 97,930 2001 44,545 2002 30,564 2003 2,174 Thereafter 85,942 -------- $277,561 ========
5. Investment in Partnerships
In connection with the RDC Transaction, the Company acquired a 49% interest in each of the Crossroads Joint Venture and Crossroads II Joint Venture (collectively "Crossroads") which collectively own a 311,000 square foot shopping center in Greenburgh, New York. The Company accounts for its investment in Crossroads using the equity method. Summary financial information of the Crossroads and the Company's investment in and share of income from Crossroads follows:
December 31, ------------ Balance Sheet Assets: Rental property, net $ 9,161 Other assets 4,308 ------- Total assets $13,469 =======
Liabilities and partners' equity Mortgage note payable $35,526 Other liabilities 502 Partners' equity (22,559) -------
Total liabilities and partners' equity $13,469 ======= Company's investment in partnerships $ 7,516 =======
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Statement of Operations Total revenue $ 2,680 Operating and other expenses 643 Interest expense 1,022 Depreciation and amortization 192 ------- Net income $ 823 ======= Company's share of net income $ 403 Amortization of excess investment (See below) 147 ------- Income from Partnerships $ 256 =======
The unamortized excess of the Company's investment over its share of the net equity in Crossroads at the date of acquisition was $19,580. The portion of this excess attributable to buildings and improvements is being amortized over the life of the related property.
6. Related Party Transactions
On July 2, 1998, Marvin Slomowitz, the Former Principal Shareholder, converted 800,000 OP Units to 800,000 Common Shares. The Company entered into the following transactions with Mr. Slomowitz in connection with the RDC Transaction: (i) repaid a $3,030 note related to the Company's 1996 purchase of the Union Plaza, (ii) paid $600 in severance pay, (iii) paid $100 on the closing of the RDC Transaction and agreed to pay $100 on each of the following two anniversary dates of the closing of the RDC Transaction for his agreement not to compete with the Company and for certain consulting services, (iv) granted ten year options to purchase 300,000 Common Shares at an exercise price of $9.00 per Common Share, (v) cancelled formerly issued options to purchase 200,000 Common Shares at $12.00 per Common Share and (vi) agreed to pay a brokerage commission of 2% of the sales price of nine designated properties currently comprising a portion of the Company's portfolio, provided such commissions will not exceed $600 in the aggregate.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
In connection with the RDC Transaction, the Company acquired certain property management contracts for three properties in which certain current shareholders of the Company or their affiliates have ownership interests. Management fees earned by the Company under these contracts are at rates of 3.25% and 3.5% of collections, or in one case, a fixed annual fee of $110. Such fees aggregated $225 for the year ended December 31, 1998. Management fees earned under management contracts on properties owned by the Former Principal Shareholder aggregated $8 and $19 for the years ended December 31, 1998 and 1997, respectively.
On June 1, 1998, the Company purchased for $1,372 the building and other improvements constituting the Blackman Plaza from Blackman Plaza Partners in which the Former Principal Shareholder is the sole general partner (owning a one percent economic interest). The Company was already the owner of the land. Payment for the building and other improvements was made with the proceeds from a financing with CS First Boston (this debt was subsequently retired following the RDC Transaction) and the application of ground rent in arrears totaling $496 due the Company.
As of December 31, 1998 and 1997 amounts due (to) from related parties consisted of the following:
December 31, 1998 1997 ---- ---- Accrued ground rent and management fees due from Blackman Plaza Partners $ -- $202 Other net amounts due to shareholder or affiliates (176) (25) ----- ---- $(176) $177 ===== ====
The Company leases office space from the Former Principal Shareholder under the terms of a noncancellable ten year operating triple net lease expiring in June 2003 and which currently provides for annual rent of $117 with annual escalations based on increases in the consumer price index. Rent expense was $112, $104 and $104 for the years ended December 31, 1998, 1997 and 1996, respectively.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
7. Tenant Leases
Space in the shopping centers and other retail properties is leased to various tenants under operating leases which usually grant tenants renewal options and generally provide for additional rents based on certain operating expenses as well as tenants' sales volume.
Minimum future rentals to be received under noncancelable leases for shopping centers and other retail properties as of December 31, 1998 are summarized as follows:
1999 $ 45,824 2000 42,868 2001 39,103 2002 35,824 2003 33,339 Thereafter 202,273 -------- $399,231 ========
Minimum future rentals above include a total of $19,924 for four tenants which have filed for bankruptcy protection. None of these leases have been rejected nor affirmed.
During the year ended December 31, 1998, no single tenant collectively accounted for more than 10% of the Company's total revenues. During the years ended December 31, 1997 and 1996, rental income representing 10% or more of total revenues was earned from various governmental agencies of the State of Florida. Leases with these Florida agencies contain customary conditions, required under Florida Law, permitting state agency tenants to cancel their leases upon six months' notice in the event that state-owned facilities in the same county become available. As such, minimum rents from these Florida agencies are not included in the above table of minimum future rentals. Rentals earned under these leases during the years ended December 31, 1997 and 1996 were $4,890 and $4,735, respectively.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
8. Lease Obligations
The Company leases land at eight of its shopping centers which are accounted for as operating leases and generally provide the Company with renewal options. One of the leases terminates in 2088, with no renewal options and a purchase option for $1,600, that expires in 1999. Seven of the leases terminate during the years 2006 to 2033 and provide the Company with options to renew the leases for additional terms aggregating from 20 to 60 years. The Company leases space for its New York City corporate office for a term expiring in 2002. Additionally, the Company leases office space from the Former Principal Shareholder under a non-cancelable lease agreement for a term of ten years, which expires in June 2003. Future minimum rental payments required for leases having remaining non-cancelable lease terms in excess of one year are as follows:
1999 $ 926 2000 939 2001 940 2002 894 2003 799 Thereafter 32,235 ------- $36,733 =======
9. Share Option Plan
The Company currently has incentive and nonqualified share option plans authorizing the issuance of 500,000 share options to employees and 100,000 share options to non-employee trustees, respectively. With the exception of the 300,000 share options which were issued to the Former Principal Shareholder as a result of the RDC Transaction (note 6), the Company has terminated all other outstanding options as of December 31, 1998 as provided for in the share option plan as a result of the RDC transaction.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
The Company accounts for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations. Under APB 25, no compensation expense has been recognized in the accompanying financial statements because the exercise price of the Company's employee stock options equaled or exceeded the market price of the underlying stock on the date of grant. The alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), has not been elected by the Company.
Accordingly, proforma information regarding net income and earnings per share as required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk free interest rate of 5.2%, expected dividend yield of 9.4%, volatility factor of the expected market price of the Company's Common Shares based on historical results of .377; and an expected life of 9.7 years. The Company has elected not to present proforma information because the impact on the reported net loss per share is immaterial. Changes in the number of shares under all option arrangements are summarized as follows:
Year ended December 31, 1998 1997 1996 ---- ---- ---- Outstanding at beginning of period 329,500 217,000 234,500 Granted 305,000 152,500 5,000 Option price per share granted $8.88-$9.00 $10.13-$11.19 $11.38 Cancelled 334,500 40,000 22,500 Exercisable at end of period 300,000 181,100 127,200 Exercised -- -- -- Expired -- -- -- Outstanding at end of period 300,000 329,500 217,000 Option prices per share outstanding $9.00 $10.13-$12.75 $11.38-$12.75
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
Share Option Plan, continued As of December 31, 1998 the outstanding options had a weighted average remaining contractual life of approximately 9.7 years.
10. Restricted Share Plan The Company had established a restricted share plan which originally granted to employees 47,722 restricted Common Shares. The restricted shares which were granted were scheduled to vest and be issued 20% per year over a five year period which began June 1, 1994. All such shares other than those which had been forfeited prior to vesting were issued as of December 31, 1998. Each plan participant was entitled to receive additional compensation on a quarterly basis equal to the dividend declared on their respective restricted shares granted under the plan until such plan participants' restricted shares were vested. For the years ended December 31, 1998, 1997 and 1996 total compensation expense related to such restricted shares vested in such periods amounted to $29, $76 and $103, respectively.
11. Employee 401(k) Plan The Company maintains a 401(k) plan for employees under which the Company currently matches 50% of a plan participant's contribution up to 6% of the employee's annual salary. A plan participant may contribute up to a maximum of 15% of their compensation but not in excess of $10 for the year ended December 31, 1998. The Company contributed $77, $67 and $67 for the years ended December 31, 1998, 1997 and 1996, respectively.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
12. Distributions The Company has determined that the cash distributed to the shareholders is characterized as follows for federal income tax purposes:
1998 1997 1996
Ordinary income n/a 34% 35% Return of capital n/a 66% 65% --- ---- ---- n/a 100% 100% === ==== ====
13. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 "Disclosures About Fair Value of Financial Instruments", requires disclosure on the fair value of financial instruments. Certain of the Company's assets and liabilities are considered financial instruments. Fair value estimates, methods and assumptions are set forth below.
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Expenses The carrying amount of these assets and liabilities approximates fair value due to the short-term nature of such accounts.
Mortgage Notes Payable As of December 31, 1998 and 1997, the Company has determined the estimated fair value of its mortgage notes payable are approximately $292,854 and $206,491, respectively, by discounting future cash payments utilizing a discount rate equivalent to the rate at which similar mortgage notes payable would be originated under conditions then existing.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
14. Summary of Quarterly Financial Information (unaudited) The separate results of operations of the Company for the years ended December 31, 1998, 1997 and 1996 are as follows:
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
15. Legal Proceedings On November 20, 1995, Jack Wertheimer, the former President of the Company, filed a complaint against the Company, its Trustees, including the Former Principal Shareholder, and the Company's former in-house General Counsel and former Chief Financial Officer in the United States District Court for the Middle District of Pennsylvania. The complaint, which was filed in connection with the termination of Mr. Wertheimer's employment, included many of the allegations raised in a state court proceeding commenced by Mr. Wertheimer in November 1994. The Federal court complaint also included a civil RICO action in which Mr. Wertheimer alleged that the Board of Trustees of the Company conspired with the Former Principal Shareholder to terminate Mr. Wertheimer's employment as part of the Former Principal Shareholder's breach of his duty of good faith and fair dealing. Further, Mr. Wertheimer alleged that the above defendants engaged in securities fraud in connection with the initial public offering and that the Former Principal Shareholder defrauded or overcharged the Company in corporate transactions. The Federal complaint sought treble damages under RICO, as well as damages arising from Mr. Wertheimer's alleged termination of employment, invasion of privacy, intentional infliction of emotional distress, fraud and misrepresentation. The Company and all defendants filed motions to dismiss the RICO and tort claims which the court, on December 9, 1996, granted in part and denied in part. Specifically, the court dismissed Mr. Wertheimer's claims for wrongful discharge, fraud and negligence misrepresentation, but declined to dismiss the remainder of the claims at that time. On January 23, 1997, the defendants filed an answer to Mr. Wertheimer's complaint. In the answer, the defendants denied all allegations of wrongdoing, and also filed counterclaims against Mr. Wertheimer alleging Mr. Wertheimer made material misrepresentations in connection with his hiring and breached his employment contract and fiduciary duties to the Company.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
On December 31, 1998, the Company and Mr. Wertheimer settled this litigation and entered into an agreement whereby the Company paid Mr. Wertheimer $1,000 on December 31, 1998 and agreed to pay him (i)$900 on April 1, 1999 and (ii) five annual payments of $200 commencing January 10, 2000. Pursuant to this agreement, the Company has established a $1,000 escrow fund, which will be released upon the Company obtaining a standby letter of credit, to collateralize these future payments.
The Company is involved in other various matters of litigation arising in the normal course of business. While the Company is unable to predict with certainty the amounts involved, the Company's management and counsel are of the opinion that, when such litigation is resolved, the Company's resulting liability, if any, will not have a significant effect on the Company's consolidated financial position.
16. Contingencies Upon conducting environmental site inspections in connection with obtaining the Morgan Stanley financing during October 1996, certain environmental contamination was identified at the Troy Plaza in Troy, New York. The Company has entered into a voluntary remedial agreement with the State of New York for the remediation of the property. Environmental consultants estimate that the remaining cost of such remediation will be approximately $50 for which the Company has recorded a reserve as of December 31, 1998 and for which Morgan Stanley holds $228 in escrow to be released upon final environmental remediation at this property.
Management is not aware of any other environmental liability that they believe would have a material adverse impact on the Company's financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all properties were sold, disposed of or abandoned.
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
17. Extraordinary Item - Loss on Early Extinguishment of Debt The consolidated statement of operations for the years ended December 31, 1998 and 1996 include the write-off of $707 and $190, respectively, in net deferred financing fees as a result of the repayment of the related mortgage debts.
18. Pro Forma Information The following unaudited pro forma condensed consolidated information for the years ended December 31, 1998 and 1997 is presented as if the RDC Transaction had occurred on January 1, 1997.
1998 1997
Revenue $84,053 $82,220 ========== ========== (Loss) income before extraordinary item $(5,886) $ 5,170 ========== ========== Net (loss) income $(6,067) $ 4,731 ========== ========== Net (loss) income per share- basic and diluted $ (0.24) $ 0.19 ========== ========== Weighted average number of Common Shares outstanding 24,677,928 24,676,558 ========== ========== Weighted average number of Common Shares outstanding- assuming dilution 24,677,928 24,680,356 ========== ==========
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts)
19. Subsequent Events On February 1, 1999, the Company sold the Searstown Mall for $3,300 pursuant to its continuing plan to dispose of certain under-performing properties.
On February 4, 1999, the Board of Trustees of the Company approved and declared a quarterly dividend for the quarter ended March 31, 1999 of $0.12 per Common Share. The dividend is to be paid on April 15, 1999 to the shareholders of record as of March 31, 1999.
On February 24, 1999, the Company acquired the Mad River Station, a 154,000 square foot shopping center located in Dayton, Ohio, for $11,500. The Company assumed $7,661 in mortgage debt and funded the remaining purchase price from working capital.
On March 3, 1999, the Company entered into an agreement to sell the Auburn Plaza for $3,500. Pursuant to the contract, which contains certain customary provisions, the Company has received a $250 earnest money deposit.
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
ACADIA REALTY TRUST SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998
Acadia Realty Trust Notes To Schedule III December 31, 1998
1. These seventeen properties serve as collateral for the financing with Morgan Stanley (Note 4).
2. These seven properties serve as collateral for the financing with John Hancock Life Insurance (Note 4).
3. Depreciation and investments in buildings and improvements reflected in the statements of operations is calculated over the estimated useful life of the assets as follows:
Buildings 30 to 40 years Improvements Shorter of lease term or useful life
4. The aggregate gross cost of property included above for Federal income tax purposes was $571,824 as of December 31, 1998.
5. Construction in Progress includes approximately $12,149 for the Greenwich, Connecticut property.
6.(a) Reconciliation of Real Estate Properties:
The following table reconciles the real estate properties from January 1, 1996 to December 31, 1998:
(b) Reconciliation of accumulated Depreciation:
The following table reconciles accumulated depreciation from January 1, 1996 to December 31, 1998: