Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12002
ACADIA REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 23-2715194
(State of incorporation) (I.R.S. employer identification no.)
20 Soundview Marketplace
Port Washington, NY 11050 (516)767-8830
(Address of principal executive offices) (Registrant's
telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, $.001 par value
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
YES X NO
The aggregate market value of the voting common equity stock held by
non-affiliates of the Registrant was approximately $127.1 million based on the
closing price ($5.00) on the New York Stock Exchange for such stock on March 22,
1999 (the Company has no non-voting common equity).
The number of shares of the Registrant's Common Shares of Beneficial Interest
outstanding was 25,419,215 on March 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Definitive proxy statement for the Annual Meeting of Shareholders
presently scheduled to be held June 16, 1999, to be filed pursuant to Regulation
14A.
TABLE OF CONTENTS
Form 10-K Report
Item No. Page
PART I
1. Business 3
2. Properties 14
3. Legal Proceedings 25
4. Submission of Matters to a Vote
of Security Holders 26
PART II
5. Market for the Registrant's Common Equity and
Related Shareholder Matters 26
6. Selected Financial Data 27
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 29
7A. Quantitative and Qualitative Disclosures about
Market Risk 44
8. Financial Statements and Supplementary Data 45
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
PART III
10. Directors and Executive Officers of the Registrant 45
11. Executive Compensation 45
12. Security Ownership of Certain Beneficial Owners and Management 45
13. Certain Relationships and Related Transactions 46
PART IV
14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 46
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, which will, among other things, affect
demand for rental space, the availability and creditworthiness of prospective
tenants, lease rents and the availability of financing; adverse changes in the
Company's real estate markets, including, among other things, competition with
other companies; risks of real estate development and acquisition; governmental
actions and initiatives; and environmental/safety requirements.
PART I
ITEM 1. BUSINESS
GENERAL
Acadia Realty Trust (the "Company"), formerly Mark Centers Trust, was
formed on March 4, 1993 as a Maryland Real Estate Investment Trust ("REIT") 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. 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:
Occupancy (1) Anchor Tenants (2)
Shopping Center Year Constructed (C) Ownership % Current Lease Expiration
Property Location Acquired (A) Interest GLA 12/31/98 Lease Option Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
Northeast Region
Connecticut
239 Greenwich Avenue Greenwich 1998 (A) Fee (3)
Town Line Plaza Rocky Hill 1998 (A) Fee 205,752 96% Super Food Market (A&P) 2017/2052
(4)
Maine
Auburn Plaza (5) Auburn 1994(A) LI (6) 259,218 59% Hoyt Cinema 2005/2020
Service Merchandise 2011/2090 (7)
Massachusetts
Methuen Shopping Center Methuen 1998 (A) Fee 129,494 100% Caldor 2001/2021 (7)
DeMoulas Market 2000/2015
Crescent Plaza Brockton 1984(A) Fee (8) 216,095 99% Bradlees 2009/2027
Shaw's 2012/2042
New Jersey
Berlin Shopping Center Berlin 1994(A) Fee 187,296 88% Kmart 1999/2049
Acme 2005/2015
Elmwood Park Plaza Elmwood Park 1998 (A) Fee 124,144(15) 86% Grand Union 2001/none
Ledgewood Mall Ledgewood 1983(A) Fee 511,131 64% The Sports' Authority 2007/2037
Stern's 2005/2030
Walmart (9)
Circuit City (9)
Manahawkin Village
Shopping Center Manahawkin 1993(A) Fee 175,261 95% Kmart 2019/2069
Manahawkin Cinema 2018/2038
Marketplace of Absecon Absecon 1998 (A) Fee 91,699 96% SuperFresh (A&P) 2015/2055
Occupancy (1) Anchor Tenants (2)
Shopping Center Year Constructed (C) Ownership % Current Lease Expiration
Property Location Acquired (A) Interest GLA 12/31/98 Lease Option Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
New York
Branch Shopping Center Village of the 1998 (A) LI (6) 125,812 100% Grand Union 2013/2028
Branch Pergament 2004/2019
New Loudon Center Latham 1982(A) Fee 251,743 62% Price Chopper 2015/2035
Marshalls 2004/2009
Troy Plaza Troy 1982(A) Fee 128,479 92% Ames 2001/2016
Price Chopper 2004/2014
Smithtown Shopping
Center Smithtown 1998 (A) Fee 87,155 92% Daffy's 2008/2028
Walgreens 2021/none
Soundview Marketplace Port Washington 1998 (A) LI/Fee (6) 169,555 85% King Kullen 2007/2022
Clearview Cinema Group 2010/2030
(subsidiary of Cablevision)
Rhode Island
Walnut Hill Plaza Woonsocket 1998 (A) Fee 260,988 97% Sears 2003/2033
Shaw's 2013/2043
Mid-Atlantic Region
Pennsylvania
25th Street Shopping
Center Easton 1993(A) Fee 131,477 97% CVS 2005/2010
Petco 2009/2018
Ames Plaza Shamokin 1966(C) Fee 98,210 92% Ames 2000/2013
BiLo 1999 (7), (10)
Atrium Mall Abington 1998 (A) Fee 178,434 78% SuperFresh (A&P) 2009/2039
Circuit City 2009/2029
TJ Maxx 2004/2014
Birney Mall Moosic 1968(C) Fee 193,899 96% Kmart 1999/2049
Consolidated Stores 2003/2008
Occupancy (1) Anchor Tenants (2)
Shopping Center Year Constructed (C) Ownership % Current Lease Expiration
Property Location Acquired (A) Interest GLA 12/31/98 Lease Option Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
Blackman Plaza Wilkes-Barre 1968(C) Fee 117,456 99% Kmart 2004/2049
Bradford Towne Centre Towanda 1993(C) Fee 257,319 92% Kmart 2019/2069
P&C Foods 2014/2024 (7)
Circle Plaza Shamokin Dam 1978(C) Fee 92,171 100% Kmart 2004/2054
Dunmore Plaza Dunmore 1975(A) Fee (11) 45,380 100% Price Chopper 2000/2020
Eckerd Drug 2004/2019
East End Centre Wilkes-Barre 1986(C) Fee 308,427 100% Hills 2007/2037 (16)
PharMor 2003/2017
Price Chopper 2008/2028
Green Ridge Plaza Scranton 1986(C) Fee 197,622 100% Hills 2007/2037
BiLo 2008/2017 (7), (17)
Kingston Plaza Kingston 1982(C) Fee 64,824 100% Price Chopper 2006/2026
Dollar General 2001/2007
Luzerne Street Shopping
Center Scranton 1983(A) Fee 57,715 100% Price Chopper 2004/2024
Eckerd Drug 2004/2019
Mark Plaza Edwardsville 1968(C) LI(6) 216,220 100% Kmart 2004/2049
Redner's Markets 2018/2028
Monroe Plaza Stroudsberg 1964(C) Fee (6) 130,569 100% Ames 2001/2019
Shoprite 2005/2023
Eckerd Drug 2002/2012
Mountainville Shopping
Center Allentown 1983(A) Fee 114,801 93% Acme 2004/2028
True Value Hardware 2002/2010
Eckerd Drug 2004/2019
Pittston Plaza Pittston 1994(C) Fee 79,568 97% BiLo 2015/2025 (7), (18)
Eckerd Drug 2004 (10)
Plaza 15 Lewisburg 1995(A) Fee 113,530 98% Weis Market 2001/2021 (12)
Ames 2001/2021
Plaza 422 Lebanon 1972(C) Fee 154,791 93% Hills 2001/2021
Giant Food 2004 (10)
Route 6 Mall Honesdale 1994(C) Fee 175,482 99% Kmart 2020/2070
Occupancy (1) Anchor Tenants (2)
Shopping Center Year Constructed (C) Ownership % Current Lease Expiration
Property Location Acquired (A) Interest GLA 12/31/98 Lease Option Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
Shillington Plaza Reading 1994(A) Fee 150,742 100% Kmart 2004/2049
Weis Market 2001/2019
Tioga West Tunkhannock 1965(C) Fee 122,338 100% BiLo 2014/2024 (7)
Ames 2000/2015
Eckerd Drug 2000/2010
Fashion Bug 2009/2021
Union Plaza New Castle 1996(C) Fee 217,992 100% Sears 2011/2031
Hills 2017/2026
Peebles 2018/2027
Valmont Plaza West Hazleton 1985(A) Fee 200,164 99% Hills 2007/2027
BiLo 2008/2027 (19)
Virginia
Kings Fairgrounds Danville 1992(A) LI (6) 118,535 100% Schewel Furniture 2001/2011
The Tractor Co. 2008/2023
CVS 2002/2012 (10)
Southeast Region
Alabama
Midway Plaza Opelika 1984(A) Fee 207,538 77% Office Depot 2007/2022
Carmike Cinema 2005/2015
Beall's Outlet Stores 2001/none
Northside Mall Dothan 1986(A) Fee (6) 382,299 88% Wal-Mart 2004/2029
Montgomery Ward 2004/2014 (7)
Occupancy (1) Anchor Tenants (2)
Shopping Center Year Constructed (C) Ownership % Current Lease Expiration
Property Location Acquired (A) Interest GLA 12/31/98 Lease Option Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
Florida
New Smyrna Beach
Shopping Center New Smyrna Beach 1983(A) Fee 100,430 96% DeMarsh Theater 2005/2015
Hardbodies Family Fitness 2008/none
Searstown Mall (13) Titusville 1984(A) Fee 265,549 69% Sears 2003/2013
United Artist 2005/2015
Georgia
Cloud Springs Plaza Fort Oglethorpe 1985(A) Fee 113,367 96% Food Lion 2011/2031
Consolidated Stores 2000/2005
Badcock Furniture 2000/2010
South Carolina
Martintown Plaza North Augusta 1985(A) LI (6) 133,892 98% Belk's Store 2004/2024
Office Depot 2008/2018
Old America Stores 2008/none
Wesmark Plaza Sumter 1986(A) Fee 215,198 74% Staples 2005/2015
Old America Store 2007/2012
Goody's 2005/2015
Midwest Region
Illinois
Hobson West Plaza Naperville 1998 (A) Fee 99,950 88% Eagle Foods 2007/2032
Indiana
Merrillville Plaza Hobart 1998 (A) Fee 235,420 99% JC Penney 2008/2018
Office Max 2008/2028
TJ Maxx 2004/2009
Michigan
Bloomfield Town Square Bloomfield Hills 1998 (A) Fee 216,303 92% Burlington Coat 2009/2014 (10)
Drug Emporium 2000/2020
TJ Maxx 2003/2013
Office Max 2010/2025
Occupancy (1) Anchor Tenants (2)
Shopping Center Year Constructed (C) Ownership % Current Lease Expiration
Property Location Acquired (A) Interest GLA 12/31/98 Lease Option Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
Mixed-Use Property
Florida
Northwood Centre Tallahassee 1985(A) Fee 500,012 92% FL Dept of HRS 2004
FL Dept of Business and
Professional Regulation 2006
Property Owned in Joint Venture (14)
New York
Crossroads Shopping
Center Greenburgh 1998 JV 310,897 100% Kmart 2012/2037
------- ---
Waldbaum's (A&P) 2007/2032
Total 9,242,343 90%
========= ===
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
(GLA and rent in thousands)
Percentage of Total
Represented by Retail Tenant
----------------------------
Number of
Retail Stores in Total Annualized Base Total Annualized Base
Tenant Portfolio GLA Rent (1) Portfolio GLA (2) Rent (2)
------ --------- ----- --------------- ------------- --------------
Kmart 9 924 $ 3,432 11.0% 7.3%
Ames (3) 10 739 2,211 8.8% 4.7%
A&P (Waldbaum's, Superfresh) 3 155 1,880 1.8% 4.0%
Penn Traffic (BiLo, P&C Foods) (4) 6 279 1,837 3.3% 3.9%
Price Chopper 6 267 1,559 3.2% 3.3%
Thrift (Eckerd Drug) 15 164 1,088 1.9% 2.3%
Shaw's 2 103 1,015 1.2% 2.2%
Grand Union 2 91 957 1.1% 2.0%
Sears (5) 2 160 703 1.9% 1.5%
T.J. Maxx 4 112 665 1.3% 1.4%
JC Penney 2 73 547 0.9% 1.2%
Payless Shoe Source 12 41 541 0.5% 1.2%
Blockbuster Video 4 23 489 0.3% 1.0%
CVS 6 61 488 0.7% 1.0%
Circuit City (6) 1 33 438 0.4% 0.9%
Walgreens 2 19 420 0.2% 0.9%
Acme 2 64 406 0.8% 0.9%
Kay Bee Toys 4 26 405 0.3% 0.9%
OfficeMax 2 48 375 0.6% 0.8%
Pergament 2 33 309 0.4% 0.7%
US Postal Service 2 16 281 0.2% 0.6%
Dunham's Sports 2 48 261 0.6% 0.6%
Factory Card Outlet 2 19 230 0.2% 0.5%
Old Country Buffet 2 19 230 0.2% 0.5%
Walmart (6) 1 112 228 1.3% 0.5%
--- ----- ------- ----- -----
Total 105 3,629 $20,995 43.1% 44.8%
=== ===== ======= ===== =====
(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)
Percentage of Total
Represented by Expiring Leases
------------------------------
Number of GLA of Expiring Annualized Base Annualized Base
December 31, Leases Expiring Leases Rent(1) Leased GLA Rent
------------ --------------- --------------- --------------- ---------- --------------
1999 143 800 $ 3,725 11% 8%
2000 108 665 4,021 9% 9%
2001 96 831 4,001 11% 9%
2002 67 296 2,293 4% 5%
2003 64 522 3,596 7% 8%
2004 47 1,080 4,721 14% 10%
2005 27 413 3,465 5% 7%
2006 13 139 1,033 2% 2%
2007 20 553 3,041 7% 6%
2008 27 439 3,559 6% 8%
Thereafter 50 1,805 13,403 24% 28%
--- ----- ------- --- ---
Total 662 7,543 $46,858 100% 100%
=== ===== ======= === ===
(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:
(GLA and rent in thousands)
Percentage of Total
Represented by Region
Annualized Base -----------------------
Annualized Base Rent per Leased Annualized Base
Region GLA Occupied % Rent(1) Square Foot GLA Rent
------ --- -------- ------- ----------- --- ----
Northeast 2,924 82% $ 20,093 $ 8.41 32% 35%
Mid-Atlantic 3,537 97% 17,930 5.22 38% 31%
Southeast 1,418 85% 4,130 3.43 16% 7%
Midwest 552 95% 4,705 8.98 6% 8%
----- ----- -------- ------ ---- ----
8,431 90% 46,858 6.21 92% 81%
Mixed-Use Property 500 100% 5,693 12.37 5% 10%
Joint Venture Property 311 92% 4,899 15.76 3% 9%
----- ----- -------- ------ ---- ----
Total 9,242 90% $ 57,450 $ 6.90 100% 100%
===== ===== ======== ====== === ====
(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:
Multi-family Ownership % Occupied
Property Location Year Acquired Interest Units 12/31/98
- ---------------------------------------------------------------------------------------------------------------------
Maryland
Glen Oaks Apartments Greenbelt 1998 Fee 463 100%
Marley Run Apartments Pasadena 1998 Fee 336 96%
Missouri
Gate House, Holiday House, Tiger Village Columbia 1998 Fee 592 90%
Colony Apartments Columbia 1998 Fee 282 98%
North Carolina
Village Apartments Winston Salem 1998 Fee 600 87%
----- ---
Totals 2,273 92%
===== ===
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 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 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
- -------------- ------ ---- ---------
1998
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 --
1997
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 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.
Years ended December 31,
----------------------------------------------------------------------------------
1998(1) 1997 1996 1995 1994
----------------------------------------------------------------------------------
OPERATING DATA:
Revenues $ 59,771 $ 44,498 $ 43,796 $ 43,332 36,333
-----------------------------------------------------------------------------------
Operating expenses 28,485 17,055 17,868 16,374 14,797
Interest and other financing expense 18,302 15,444 12,733 10,598 5,763
Depreciation and amortization 15,795 13,768 13,398 11,820 9,066
-----------------------------------------------------------------------------------
Total 62,582 46,267 43,999 38,792 29,626
-----------------------------------------------------------------------------------
(2,811) (1,769) (203) 4,540 6,707
Non-recurring charges (2) (2,249) - - - -
Equity in earnings of unconsolidated
partnerships 256 - - - -
Adjustment of carrying value of property
held for sale (11,560) - (392) - -
-----------------------------------------------------------------------------------
(Loss) income before (loss) gain on sale,
extraordinary items and minority interest (16,364) (1,769) (595) 4,540 6,707
(Loss) gain on sale of property (175) (12) 21 93 305
Extraordinary items - loss on early
extinguishment of debt (707) -- (190) -- --
Minority interest 3,348 217 40 (833) (1,222)
-----------------------------------------------------------------------------------
Net(loss)income $ (13,898) $ (1,564) $ (724) $ 3,800 $ 5,790
===================================================================================
Net (loss) income per Common Share
- basic and diluted $ (0.91) $ (0.18) $ (0.08) $ 0.44 $ 0.68
===================================================================================
Weighted average number of Common
Shares outstanding
- basic 15,205,962 8,551,930 8,546,553 8,540,631 8,533,688
===================================================================================
- diluted (3) 15,205,962 8,551,930 8,546,553 8,563,466 8,563,529
===================================================================================
Funds from Operations (4) $ 14,720 $ 10,827 $ 12,372 $ 15,281 $ 14,831
===================================================================================
Funds from Operations per share (5) $ 0.72 $ 1.06 $ 1.22 $ 1.50 $ 1.46
===================================================================================
BALANCE SHEET DATA:
Real estate before accumulated
depreciation $ 551,249 $ 311,688 $ 307,411 $ 291,157 $ 278,611
Total assets 528,512 254,500 258,517 249,515 242,483
Total mortgage indebtedness 277,561 183,943 172,823 151,828 124,410
Minority interest - Operating
Partnership 79,344 9,244 10,752 13,228 14,827
Total equity 154,591 48,800 56,806 69,779 78,183
(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 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 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 of this Annual Report on Form
10-K for certain quantitative details related to the Company's mortgage debt.
Currently, the Company manages its exposure to fluctuations in interest rates
primarily through the use of fixed-rate debt. As of December 31, 1998, the
Company had total mortgage debt of $277.6 million of which $247.5, or 89%, is
fixed-rate and $30.1 million, or 11%, is variable-rate based upon either LIBOR
or the lender's commercial paper rate, plus certain spreads. The Company may
seek variable-rate financing if and when pricing and other commercial and
financial terms warrant. As such, the Company would consider hedging against the
interest rate risk related to such variable-rate debt through interest rate
swaps and protection agreements, or other means.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in items
14(a)(1) and 14(a)(2) hereof are incorporated herein by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
This item is incorporated by reference from the definitive proxy
statement for the Annual Meeting of Shareholders presently scheduled to be held
on June 16, 1999, to be filed pursuant to Regulation 14A.
ITEM 11 EXECUTIVE COMPENSATION
This item is incorporated by reference from the definitive proxy
statement for the Annual Meeting of Shareholders presently scheduled to be held
on June 16 1999, to be filed pursuant to Regulation 14A.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This item is incorporated by reference from the definitive proxy
statement for the Annual Meeting of Shareholders presently scheduled to be held
on June 16, 1999, to be filed pursuant to Regulation 14A.
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 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 F-2
Consolidated Balance Sheets as of
December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the
years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1998,
1997 and 1996 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-9
2. Financial Statement Schedules
Schedule III - Real Estate and
Accumulated Depreciation F-33
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
Exhibit No.
3.1(a) Declaration of Trust Incorporated by reference
of the Company, as to the copy thereof filed as
amended an exhibit to the Company's
Form 10-K filed for the fiscal
Year ended December 31, 1994
3.2 By-Laws of the Company Incorporated by reference
to the copy thereof filed as
an exhibit to the Company's
Form S-11 (File No.33-60008)
("Form S-11")
3.1(b) Fourth Amendment to Incorporated by reference to
Declaration of Trust the copy thereof filed as an
Exhibit to Company's Form
10-Q filed for the quarter
ended September 30, 1998
10.1(a) Agreement of Limited Incorporated by reference to
Partnership of the the copy thereof filed as an
Operating Partnership exhibit to Amendment No. 3 to
the Company's Form S-11
10.1(b) First, Second Filed herewith
and Third Amendments to
the Agreement of Limited
Partnership of the
Operating Partnership
10.2 Loan Agreement Incorporated by reference to
between the Company the copy thereof filed as
and Metropolitan exhibit to Amendment No. 3
Life Insurance to the Company's Form S-11
Company
10.3(a) Loan Agreement Incorporated by reference to
between the Company the copy thereof filed as an
and Fleet Bank of exhibit to Amendment No. 3
Massachusetts, N.A. to the Company's Form S-11
10.3(b) First Amended and Incorporated by reference to
Restated Loan Agreement the copy thereof filed as an
between the Company and exhibit to the Company's Form
Fleet National Bank 10-K filed for the fiscal
dated May 30, 1995 year ended December 31, 1995
10.3(c) Amendment Number One to Incorporated by reference to
the First Amended and the copy thereof filed as an
Restated Assumption, exhibit to the Company's Form
Extension and Loan 10-K filed for the fiscal
Agreement between the year ended December 31, 1995
Company and Fleet
National Bank dated
December 6, 1995
10.3(d) Amendment Number Two Incorporated by reference to
To the First Amended the copy thereof filed as an
and Restated Assumption, exhibit to the Company's Form
Extension and Loan 10-Q filed for the quarter
Agreement between the ended September 30, 1996
Company and Fleet
National Bank
10.3(e) Amendment Number Three Incorporated by reference to
to the First Amended the copy thereof filed as an
and Restated Assumption, exhibit to the Company's Form
Extension and Loan 10-Q filed for the quarter
Agreement between the ended June 30, 1997
Company and Fleet
National Bank
10.3(f) Second Amended and Incorporated by reference to
Restated Assumption the copy thereof filed as an
Extension and Loan exhibit to the Company's Form
Agreement between the 10-Q filed for the quarter
Company and Fleet ended March 31, 1998
National Bank
10.4 Acquisition Option Incorporated by reference to
Agreement between the copy thereof filed as an
the Company and exhibit to Amendment No. 3
Marvin L. Slomowitz to the Company's Form S-11
10.5(a) Option Agreement Incorporated by reference
between the Company to the copy thereof filed
and the Former Principal as an exhibit to Amendment
Shareholder allowing No. 3 to the Company's Form
the Company to acquire S-11
certain properties
from the Former Principal
Shareholder
10.5(b) Amendment to the Option Incorporated by reference
Agreement between the to the copy thereof filed as
Company and the Former an exhibit to the Company's
Principal Shareholder Form 10-K filed for the fiscal
year ended December 31, 1993
10.5(c) Agreement of Sale and Incorporated by reference to
Purchase (Hudson, New the copy thereof filed as an
York) between the exhibit to the Company's
Company and Marvin L. Form 10-K filed for the fiscal
Slomowitz dated year ended December 31, 1995
February 27, 1996
10.5(d) Agreement of Sale and Incorporated by reference to
Purchase (New Castle, the copy thereof filed as an
Pennsylvania) between exhibit to the Company's
the Company and Form 10-K filed for the fiscal
Marvin L. Slomowitz year ended December 31, 1995
dated February 19, 1996
10.5(e) Termination of Option Incorporated by reference to
Agreements between the the copy thereof filed as an
Company and the exhibit to the Company's Form
Principal Shareholder 10-Q filed for the quarter
to acquire certain ended June 30, 1996
properties
10.5(f) Option Agreement Incorporated by reference to
between the Company the copy thereof filed as an
and Former Principal exhibit to the Company's Form
Shareholder allowing 10-Q filed for the quarter
the Company to acquire ended June 30, 1996
a certain property from
the Former Principal
Shareholder
10.5(g) First Amendment to Incorporated by reference to
Agreement of Sale and the copy thereof filed as an
Purchase (Hudson, NY) exhibit to the Company's Form
between the Company 10-Q filed for the quarter
and Former Principal ended June 30, 1996
Shareholder
10.5(h) Option Purchase Incorporated by reference to
Agreement between the the copy thereof filed as an
Company and the Former exhibit to the Company's
Principal Shareholder Form 10-K filed for the fiscal
Allowing the Company to year ended December 31, 1997
Acquire a certain
property from the
Former Principal
Shareholder
10.5(i) Termination of Option Incorporated by reference to
to Purchase (Lewisburg) the copy thereof filed as an
between the Company and exhibit to the Company's
the Former Principal Form 10-K filed for the fiscal
Shareholder year ended December 31, 1997
*10.6(a) Share Option Plan Incorporated by reference to
the copy thereof filed as an
exhibit to Amendment No. 3 to
the Company's Form S-11
*10.6(b) Mark Centers Trust Incorporated by reference to
1994 Share Option the copy thereof filed as an
Plan exhibit to the Company's
Form S-8 filed August 17,
1995
*10.6(c) Mark Centers Trust Incorporated by reference to
1994 Non-Employee the copy thereof filed as an
Trustees' Share exhibit to the Company's Form
Option Plan S-8 filed August 17, 1995
*10.7 Restricted Share Plan Incorporated by reference to
the copy thereof filed as an
exhibit to Amendment No. 3 to
the Company's Form S-8 filed
June 15, 1994
*10.8 Noncompetition Incorporated by reference
Agreement between to the copy thereof filed as
Marvin L. Slomowitz an exhibit to Amendment No. 3
and the Company to the Company's Form S-11
*10.9 Form of Severance Incorporated by reference
Agreement between the to the copy thereof filed
Company and certain as an exhibit to Amendment
executive officers No. 3 to the Company's
Form S-11
10.10 Form of Lock-Up Incorporated by reference
Agreement between the to the copy thereof filed as
Company and its an exhibit to Amendment No. 3
Trustees and to the Company's Form S-11
executive officers
10.11 Form of Agreement Incorporated by reference
of Purchase and Sale to the copy thereof filed as
for the properties an exhibit to Amendment No. 3
to the Company's Form S-11
10.12 Form of Lease for Incorporated by reference to
headquarters the copy thereof filed as an
exhibit to Amendment No. 3
to the Company's Form S-11
10.13(a) Management Agreements Incorporated by reference to
the copy thereof filed as an
exhibit to Amendment No. 3
to the Company's Form S-11
10.13(b) Termination of Incorporated by reference to
Management Agreements the copy thereof filed as an
exhibit to the Company's Form
10-Q filed for the quarter
ended June 30, 1996
10.14 Form of Registration Incorporated by reference
Rights Agreement to the copy thereof filed as
an exhibit to Amendment No. 4
to the Company's Form S-11
10.15 Agreement of Purchase Incorporated by reference
and Sale between the to the copy thereof filed as
Operating Partnership an exhibit to the Company's
and Manahawkin Route 72 Form 8-K filed on
L.P. dated November 23, December 30, 1993
1993
10.16 Agreement of Purchase Incorporated by reference
and Sale between the to the copy thereof filed as
Operating Partnership an exhibit to the Company's
And Twenty-Fifth Form 8-K filed on
Street Associates, L.P. December 30, 1993
dated November 23, 1993
10.17(a) Loan Agreement Incorporated by reference
between the Company to the copy thereof filed as
and Mellon Bank, N.A. an exhibit to the Company's
Form 10-K filed for the fiscal
year ended December 31, 1994
10.17(b) First Amendment to Incorporated by reference
Revolving Credit Loan to the copy thereof filed as
Agreement between the an exhibit to the Company's
Company and Mellon Form 10-K filed for the fiscal
Bank, N.A. dated year ended December 31, 1995
November 15, 1995
10.17(c) Second Amendment to Incorporated by reference
Revolving Credit Loan to the copy thereof filed as
Agreement between the an exhibit to the Company's
Company and Mellon Form 10-K filed for the fiscal
Bank, N.A. dated year ended December 31, 1995
February 29, 1996
10.17(d) Third Amendment To Incorporated by reference to
Revolving Credit Loan the copy thereof filed as an
Agreement between the exhibit to the Company's Form
Company and Mellon 10-Q filed for the quarter
Bank, N.A. ended September 30, 1996
10.17(e) Fourth Amendment to Incorporated by reference to
Revolving Credit Loan the copy thereof filed as an
Agreement between the exhibit to the Company's Form
Company and Mellon 10-Q filed for the quarter
Bank, N.A. ended June 30, 1997
10.17(f) Fifth Amendment to Incorporated by reference to
Revolving Credit Loan the copy thereof filed as an
Agreement between the exhibit to the Company's Form
Company and Mellon 10-K filed for the fiscal
Bank, N.A. year ended December 31, 1997
10.17 (g) Sixth Amendment to Incorporated by reference to
Revolving Credit Loan the copy thereof filed as an
Agreement between the exhibit to the Company's Form
Company and Mellon 10-Q filed for the quarter
Bank, N.A. ended June 30, 1998
10.18 Form of Loan Agreement Incorporated by reference
together with Form of to the copy thereof filed as
First Mortgage and an exhibit to the Company's
Security Agreement Form 10-K filed for the fiscal
between the Company and year ended December 31, 1995
John Hancock Mutual Life
Insurance Company dated
March 15, 1995
10.19 Construction Loan Incorporated by reference
Agreement between the to the copy thereof filed as
Company and Mellon Bank, an exhibit to the Company's
N.A. dated November 15, Form 10-K filed for the fiscal
1995 year ended December 31, 1995
10.20(a) Loan Agreement between Incorporated by reference
the Company and to the copy thereof filed as
Firstrust Bank dated an exhibit to the Company's
December 21, 1995 Form 10-K filed for the fiscal
year ended December 31,1995
10.20(b) Amendment to Mortgage Incorporated by reference to
and Assignments of the copy thereof filed as an
Rents and Leases between exhibit to the Company's Form
the Company and 10-Q filed for the quarter
Firstrust Bank ended June 30, 1996
10.20(c) Construction and/or Incorporated by reference to
Development Loan the copy thereof filed as an
Agreement between exhibit to the Company's Form
the Company and 10-Q filed for the quarter
Firstrust Bank ended September 30, 1997
10.20(d) Open End Fee and Incorporated by reference to
Leasehold Mortgage the copy thereof filed as an
between the Company exhibit to the Company's Form
and Firstrust Bank 10-Q for the quarter
ended September 30, 1997
10.21(a) Promissory Note Incorporated by reference to
Agreement between the the copy thereof filed as an
Company and First exhibit to the Company's Form
Federal Savings Bank 10-Q filed for the quarter
of New Smyrna ended June 30, 1996
10.21(b) Mortgage Deed and Incorporated by reference to
Security Agreement the copy thereof filed as an
between the Company and exhibit to the Company's Form
First Federal Savings 10-Q filed for the quarter
Bank of New Smyrna ended June 30, 1996
10.22(a) Indenture of Mortgage, Incorporated by reference to
Deed of Trust, Security the copy thereof filed as an
Agreement, Financing exhibit to the Company's Form
Statement, Fixture 10-Q filed for the quarter
Filing and Assignment ended September 30, 1996
of Leases, Rents and
Security Deposits
between the Company
and Morgan Stanley
Mortgage Capital, Inc.
10.22(b) Mortgage Note between Incorporated by reference to
the Company and Morgan the copy thereof filed as an
Stanley Mortgage exhibit to the Company's Form
Capital, Inc. 10-Q for the quarter
ended September 30, 1996
10.22(c) First Amendment to the Incorporated by reference to
Indenture of Mortgage, the copy thereof filed as an
Deed of Trust, Security exhibit to the Company's Form
Agreement, Financing 10-Q filed for the quarter
Statement, Fixture ended September 30, 1998
Filing and Assignment
of Lease, Rents and
Security Deposits
Between the Company and
GMAC Commercial
Mortgage Corporation
10.23(a) Construction Loan Incorporated by reference to
Agreement between the the copy thereof filed as an
Company and First exhibit to the Company's Form
Western Bank 10-Q filed for the quarter
ended September 30, 1996
10.23(b) Mortgage Note between Incorporated by reference to
the Company and First the copy thereof filed as an
Western Bank exhibit to the Company's Form
10-Q filed for the quarter
ended September 30, 1996
10.24(a) Open-End Mortgage, Incorporated by reference
Security Agreement, to the copy thereof filed as
Future Filing, Financing an exhibit to the Company's
Statement and Assignment Form 10-K filed for the fiscal
of Leases and Rents year ended December 31, 1996
between the Company
and Anchor National Life
Insurance Company
10.24(b) Promissory Note between Incorporated by reference
the Company and Anchor to the copy thereof filed as
National Life Insurance an exhibit to the Company's
Company Form 10-K filed for the fiscal
year ended December 31, 1996
10.25 Agreement of Sale Incorporated by reference
of Newberry Plaza to the copy thereof filed as
between the Operating an exhibit to the Company's
Partnership and Form 10-K filed for the fiscal
Ronnie W. Cromer, year ended December 31, 1996
William B. Rush,
Earl H. Berger, Jr.
Rodney S. Griffin and
William W. Reiser, Jr.
10.26(a) Loan Agreement dated Incorporated by reference
March 4, 1997 by and to the copy thereof filed a
between Mark Northwood an exhibit to the Company's
Associates, Limited Form 10-K filed for the fiscal
Partnership, a Florida year ended December 31, 1996
limited partnership,
and Nomura Asset
Capital Corporation
10.26(b) Promissory Note dated Incorporated by reference
March 4, 1997 between to the copy thereof filed
Mark Northwood as an exhibit to the Company's
Associates, Limited Form 10-K filed for the fiscal
Partnership, a Florida year ended December 31, 1996
limited partnership,
and Nomura Asset Capital
Corporation
10.26(c) Leasehold Mortgage, Incorporated by reference
Assignment of Rents, to the copy thereof filed
Security Agreement and as an exhibit to the Company's
Fixture Filing by Mark Form 10-K filed for the fiscal
Northwood Associates, year ended December 31, 1996
Limited Partnership, a
Florida limited partnership,
to Nomura Asset Capital
Corporation dated March
4, 1997
10.27(a) Mortgage and Security Incorporated by reference
Agreement between the to the copy thereof filed
Company and Royal Bank as an exhibit to the Company's
of Pennsylvania Form 10-K filed for the fiscal
year ended December 31, 198
10.27(b) Promissory Note between Incorporated by reference to
the Company and Royal the copy thereof filed as an
Bank of Pennsylvania exhibit to the Company's
Form 10-K filed for the fiscal
year ended December 31, 1998
10.28(a) Loan agreement between Incorporated by reference to
the Company and Credit the copy thereof filed as an
Suisse First Boston exhibit to the Company's
Mortgage Capital, LLC Form 10-Q filed for the quarter ended
June 30, 1998
10.28(b) Mortgage note between Incorporated by reference to
the Company and Credit the copy thereof filed as an
Suisse First Boston exhibit to the Company's
Mortgage Capital, LLC Form 10-Q filed for the
Quarter ended June 30, 1998
10.29 Mortgage note between Incorporated by reference to
the Company and Credit the copy thereof filed as an
Suisse First Boston exhibit to the Company's
Mortgage Capital, LLC Form 10-Q filed for the
Quarter ended June 30, 1998
10.30 Contribution and Share Incorporated by reference to
Purchase Agreement the copy thereof filed as an
with RD Capital, Inc. exhibit to the Company's
Form 8-K filed on
April 20, 1998
10.31 Severance and Filed herewith
Consulting Agreement
For Marvin L. Slomowitz
10.32 Settlement agreement Incorporated by reference to
between the Company the copy thereof filed as an
and Jack Wertheimer exhibit to the Company's
Form 8-K filed on
January 5, 1999
*10.33 Employment agreement Filed herewith
between the Company
and Ross Dworman
*10.34 Employment agreement Filed herewith
between the Company
and Kenneth F. Bernstein
21 List of Subsidiaries Filed herewith
of Acadia Realty Trust
23 Consent of Independent Filed herewith
Auditors to Form S-3
and Form S-8
27 Financial Data Schedule Filed herewith
(EDGAR filing only)
* 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
INDEX TO FINANCIAL STATEMENTS
I. ACADIA REALTY TRUST
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
December 31, 1998 and 1997 F-3
Consolidated Statements of Operations
for the years ended December 31, 1998,
1997 and 1996 F-4
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1998,
1997 and 1996 F-5
Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997
and 1996 F-6
Notes to Consolidated Financial Statements F-9
Schedule III - Real Estate and Accumulated
Depreciation F-33
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
F-2
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
F-3
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
F-4
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
Common Shares Total
------------- Additional Retained Shareholders'
Shares Amount Paid-in Capital Deficit Equity
----------------------------------------------------------------------------------
Balance, December 31, 1995 8,543,452 $ 9 $ 69,770 $ - $ 69,779
Issuance of shares pursuant to the
Company's restricted share plan 5,365 - 57 - 57
Loss before minority interest - - - (764) (764)
Distributions paid or declared
to limited partners of the
Operating Partnership - - (2,435) - (2,435)
Dividends paid or declared in
excess of accumulated earnings
($1.44 per share) - - (12,306) - (12,306)
Minority interest's equity - - 2,435 40 2,475
---------- --- -------- -------- --------
Balance, December 31, 1996 8,548,817 9 57,521 (724) 56,806
Issuance of shares pursuant to the
Company's restricted share plan 5,360 - 52 - 52
Adjustment to minority interest - - - 6 6
Loss before minority interest - - - (1,781) (1,781)
Distributions paid to limited
partners of the Operating
Partnership - - (1,285) - (1,285)
Dividends paid in excess of
accumulated earnings
($0.76 per share) - - (6,500) - (6,500)
Minority interest's equity - - 1,285 217 1,502
---------- --- -------- -------- --------
Balance, December 31, 1997 8,554,177 9 51,073 (2,282) 48,800
Issuance of shares pursuant to the
Company's restricted share plan 3,800 - 29 - 29
Conversion of 800,000 OP Units
by limited partner of the Operating
Partnership 800,000 1 4,367 - 4,368
Issuance of 13,333,333 Common
Shares in connection with the RDC
Transaction, net of issuance costs 13,333,333 13 95,909 - 95,922
Issuance of 1,989,048 Common Shares
in connection with the RDC Transaction 1,989,048 1 13,965 - 13,966
Conversion of 738,857 OP Units by
limited partners of the Operating
Partnership in connection with the
RDC Transaction 738,857 1 5,403 - 5,404
Loss before minority interest - - - (17,246) (17,246)
Minority interest's equity - - - 3,348 3,348
---------- --- -------- -------- --------
Balance, December 31, 1998 25,419,215 $25 $170,746 $(16,180) $154,591
========== === ======== ======== ========
F-5
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
Year ended December 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,898) $ (1,564) $ (724)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 15,795 13,768 13,398
Extraordinary item - loss on early extinguishment of debt 707 -- 190
Minority interest (3,348) (217) (40)
Equity in income of unconsolidated partnerships (256) -- --
Provision for bad debts 1,275 833 972
Loss (gain) on sale of property 175 12 (21)
Adjustment of carrying value of property held for sale 11,560 -- 392
Other 29 52 57
Changes in assets and liabilities:
Rents receivable (2,495) (679) (580)
Prepaid expenses (1,556) 180 (69)
Due to/from related parties 163 26 31
Other assets (975) (290) 641
Accounts payable and accrued expenses 3,120 1,233 (756)
Other liabilities 1,907 (117) 561
-------- -------- --------
Net cash provided by operating activities 12,203 13,237 14,052
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (23,253) (10,558) (16,642)
Investments in unconsolidated partnerships (861) -- --
Net proceeds from sale of property 2,193 1,288 22
Payment of deferred leasing costs (2,901) (1,205) (3,399)
-------- -------- --------
Net cash used in investing activities (24,822) (10,475) (20,019)
-------- -------- --------
F-6
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
Year ended December 31,
1998 1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Shares $ 95,923 $ -- $ --
Principal payments on mortgages (80,493) (14,835) (40,622)
Proceeds received on mortgage notes 19,877 25,955 61,617
Payment of note payable to Former Principal Shareholder (3,050) -- --
Net funding of escrows (4,744) (4,303) (688)
Payment of deferred financing and other costs (967) (757) (2,415)
Dividends paid -- (9,577) (9,229)
Distributions to minority interests (31) (1,870) (1,852)
--------- -------- --------
Net cash provided by (used in)financing activities 26,515 (5,387) 6,811
--------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,896 (2,625) 844
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,287 3,912 3,068
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,183 $ 1,287 $ 3,912
========= ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest, net of amounts
capitalized of $857, $569, and $897, respectively $ 17,650 $ 15,502 $ 12,950
========= ======== ========
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
The following activity was recorded in connection with
the RDC Transaction (Note 1).
Real estate and investment in
partnerships acquired $(253,801)
Mortgage notes payable assumed 154,234
Operating partnership units issued 83,250
Common Shares issued 13,967
Minority interests in
acquired properties 2,350
---------
Net Cash $ --
=========
F-7
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:
Year Ended December 31,
1996
Contingent liability due to Former Principal Shareholder
$(6,155)
Establishment of note payable to Former Principal Shareholder 3,030
-------
Net decrease in cost of property acquired $(3,125)
=======
See accompanying notes
F-8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
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.
F-9
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:
F-10
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.
F-11
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.
F-12
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.
F-13
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.
F-14
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.
F-15
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.
F-16
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
F-17
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):
1998
----
Retail Multi-Family All
Properties Properties Other Total
---------- ------------ ----- --------
Revenues $ 53,507 $ 5,644 $ 620 $ 59,771
Property operating expenses and
real estate taxes 19,573 2,145 -- 21,718
Net property income before depreciation,
amortization and certain nonrecurring items 33,934 3,499 620 38,053
Depreciation and amortization 15,166 629 -- 15,795
Interest expense 16,685 1,606 11 18,302
Real estate at cost 470,438 80,811 -- 551,249
Total assets 439,280 81,716 7,516 528,512
Gross leasable area (multi-family - 2,273 units) 8,931 2,039 -- 10,970
Expenditures for real estate and improvements 22,844 409 -- 23,253
Revenues
Total revenues for reportable segments $ 60,204
Elimination of intersegment ground rent and
management fee income (433)
--------
Total consolidated revenues $ 59,771
========
Property operating expenses and real estate taxes
Total property operating expenses and real estate
taxes for reportable segments $ 22,151
Elimination of intersegment ground rent and
management fee expense (433)
--------
Total consolidated expense $ 21,718
========
Reconciliation to loss before extraordinary
item and minority interest
Net property income before depreciation,
amortization and certain nonrecurring items $ 38,053
Depreciation and amortization (15,795)
General and administrative (4,409)
Non-recurring charges (2,249)
Settlement of litigation (2,358)
Equity in earnings of uncomsolidated
partnerships 256
(Loss) gain on sale of property (175)
Adjustment of carrying value of property
held for sale (11,560)
Interest expense (18,302)
--------
Loss before extraordinary item and
minority interest $(16,539)
========
1997
----
Retail Multi-Family All
Properties Properties Other Total
---------- ------------ ----- --------
Revenues $ 44,238 $ -- $ 260 $ 44,498
Property operating expenses and
real estate taxes 14,704 -- -- 14,704
Net property income before depreciation,
amortization and certain nonrecurring items 29,534 -- 260 29,794
Depreciation and amortization 13,768 -- -- 13,768
Interest expense 15,435 -- 9 15,444
Real estate at cost 311,688 -- -- 311,688
Total assets 254,500 -- -- 254,500
Gross leasable area (multi-family - 2,273 units) 7,265 -- -- 7,265
Expenditures for real estate and improvements 10,558 -- -- 10,558
Revenues
Total revenues for reportable segments $ 44,931
Elimination of intersegment ground rent and
management fee income (433)
--------
Total consolidated revenues $ 44,498
========
Property operating expenses and real estate taxes
Total property operating expenses and real estate
taxes for reportable segments $ 15,137
Elimination of intersegment ground rent and
management fee expense (433)
--------
Total consolidated expense $ 14,704
========
Reconciliation to loss before extraordinary
item and minority interest
Net property income before depreciation,
amortization and certain nonrecurring items $ 29,794
Depreciation and amortization (13,768)
General and administrative (2,351)
Non-recurring charges --
Settlement of litigation --
Equity in earnings of uncomsolidated
partnerships --
(Loss) gain on sale of property (12)
Adjustment of carrying value of property
held for sale --
Interest expense (15,444)
--------
Loss before extraordinary item and
minority interest $ (1,781)
========
1996
----
Retail Multi-Family All
Properties Properties Other Total
---------- ------------ ----- --------
Revenues $ 43,582 $ -- $ 214 $ 43,796
Property operating expenses and
real estate taxes 15,057 -- -- 15,057
Net property income before depreciation,
amortization and certain nonrecurring items 28,525 -- 214 28,739
Depreciation and amortization 13,398 -- -- 13,398
Interest expense 12,722 -- 11 12,733
Real estate at cost 307,411 -- -- 307,411
Total assets 258,517 -- -- 258,517
Gross leasable area (multi-family - 2,273 units) 7,191 -- -- 7,191
Expenditures for real estate and improvements 16,642 -- -- 16,642
Revenues
Total revenues for reportable segments $ 43,903
Elimination of intersegment ground rent and
management fee income (107)
--------
Total consolidated revenues $ 43,796
========
Property operating expenses and real estate taxes
Total property operating expenses and real estate
taxes for reportable segments $ 15,164
Elimination of intersegment ground rent and
management fee expense (107)
--------
Total consolidated expense $ 15,057
========
Reconciliation to loss before extraordinary
item and minority interest
Net property income before depreciation,
amortization and certain nonrecurring items $ 28,739
Depreciation and amortization (13,398)
General and administrative (2,811)
Non-recurring charges --
Settlement of litigation --
Equity in earnings of uncomsolidated
partnerships --
(Loss) gain on sale of property 21
Adjustment of carrying value of property
held for sale (392)
Interest expense (12,733)
-------
Loss before extraordinary item and
minority interest $ (574)
=======
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.
F-18
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:
December 31, December 31, Interest
1998 1997 Rate
------------ ------------ --------
Construction loans - Variable-rate
Firstrust Savings Bank $ -- $ 2,954
First Western Bank, N.A. -- 4,000
Mortgage notes payable - variable-rate
General Electric Capital Corp. 6,989 -- 8.02% (Commercial paper rate +2.75%)
Fleet Bank, N.A. 8,268 -- 7.34% (LIBOR + 1.78%)
KBC Bank 14,760 -- 6.88% (LIBOR + 1.25%)
Mellon Bank -- 2,759
-------- --------
Total variable-rate debt 30,017 9,713
-------- --------
Mortgage notes payable - fixed rate
Sun America Life Insurance Company 8,717 -- 7.75%
The Manufacturers Life Insurance Company (USA) 4,372 -- 7.73%
John Hancock Mutual Life Insurance Company 54,445 54,922 9.11%
Metropolitan Life Insurance Company 41,000 41,000 7.75%
Sun America Life Insurance Company 43,832 -- 7.75%
Anchor National Life Insurance Company 3,950 4,028 7.93%
Lehman Brothers Holdings, Inc. 18,140 -- 8.32%
Northern Life Insurance Company 3,409 3,627 7.70%
Bankers Security Life 2,351 2,501 7.70%
Morgan Stanley Mortgage Capital 44,729 45,312 8.84%
Nomura Asset Capital Corporation 22,599 22,840 9.02%
-------- --------
Total fixed-rate debt 247,544 174,230
-------- --------
$277,561 $183,943
======== ========
Properties Payment
Maturity Encumbered Terms
-------- ---------- -------
Construction loans - Variable-rate
Firstrust Savings Bank
First Western Bank, N.A.
Mortgage notes payable - variable-rate
General Electric Capital Corp. 01/01/02 (1) (15)
Fleet Bank, N.A. 05/31/02 (2) (15)
KBC Bank 12/31/02 (3) (15)
Mellon Bank
Total variable-rate debt
Mortgage notes payable - fixed rate
Sun America Life Insurance Company 06/24/99 (4) $74(15)
The Manufacturers Life Insurance Company (USA) 12/10/99 (5) $34(15)
John Hancock Mutual Life Insurance Company 04/01/00 (6) $455(15)
Metropolitan Life Insurance Company 06/01/00 (7) (14)
Sun America Life Insurance Company 01/01/01 (8) $346(15)
Anchor National Life Insurance Company 01/01/04 (9) $33(15)
Lehman Brothers Holdings, Inc. 03/01/04 (10) $139(15)
Northern Life Insurance Company 12/01/08 (11) $41(15)
Bankers Security Life 12/01/08 (11) $28(15)
Morgan Stanley Mortgage Capital 11/01/21 (12) $380(15)
Nomura Asset Capital Corporation 03/11/22 (13) $193(15)
Total fixed-rate debt
ACADIA REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
4. Mortgage Loans, continued
Notes:
(1) Soundview Marketplace (7) Valmont Plaza (12) Midway Plaza
Luzerne Street Plaza Northside Mall
(2) Village Commons Green Ridge Plaza New Smyrna Beach
Crescent Plaza Cloud Springs Plaza
(3) Marley Run Apartments East End Centre Troy Plaza
Martintown Plaza
(4) Village Apartments (8) Bloomfield Town Square Kings Fairgrounds
Atrium Mall Shillington Plaza
(5) Hobson West Plaza Walnut Hill Shopping Center Dunmore Plaza
GHT Apartments Kingston Plaza
(6) New Loudon Centre Colony Apartments Twenty Fifth Street Shopping Center
Ledgewood Mall Circle Plaza
Plaza 422 (9) Pittston Plaza Mountainville Plaza
Berlin Shopping Center Plaza 15
Route 6 Mall (10) Glen Oaks Apartments Birney Plaza
Tioga West Monroe Plaza
Bradford Towne Centre (11) Manahawkin Shopping Center Ames Plaza
(13) Northwood Centre
(14) Interest only monthly
(15) Monthly principal and interest
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,
1998
------------
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
=======
F-19
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.
F-20
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.
F-21
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.
F-22
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.
F-23
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
F-24
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.
F-25
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.
F-26
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:
F-27
March 31, June 30, September 30, December 31, Total for
1998 1998 1998 1998 Year
--------- -------- ------------- ------------ ---------
Revenue $10,951 $10,749 $16,150 $21,921 $59,771
=====================================================================
Loss before extraordinary item and minority interest ($621) ($1,568) ($12,920) ($1,430) ($16,539)
=====================================================================
Net loss ($533) ($1,561) ($10,800) ($1,004) ($13,898)
=====================================================================
Net loss per share - basic and diluted
Loss before extraordinary item ($0.06) ($0.15) ($0.58) ($0.04) ($0.86)
=====================================================================
Net loss ($0.06) ($0.18) ($0.60) ($0.04) ($0.91)
=====================================================================
Cash dividends paid per share $0.00 $0.00 $0.00 $0.00 $0.00
=====================================================================
Weighted average shares outstanding - basic
and diluted 8,544,177 8,555,346 18,078,215 25,419,215 15,205,962
=====================================================================
March 31, June 30, September 30, December 31, Total for
1997 1997 1997 1997 Year
--------- -------- ------------- ------------ ---------
Revenue $11,124 $11,128 $10,874 $11,372 $44,498
=====================================================================
Loss before minority interest $ (487) $ (260) $ (544) $ (490) $(1,781)
=====================================================================
Net loss $ (416) $ (242) $ (472) $ (434) $(1,564)
=====================================================================
Net loss per share - basic and diluted $ (0.05) $ (0.03) $ (0.06) $ (0.04) $ (0.18)
=====================================================================
Cash dividends paid per share $ 0.36 $ 0.20 $ 0.20 $ - $ 0.76
=====================================================================
Weighted average shares outstanding - basic
and diluted 8,548,817 8,550,466 8,554,177 8,554,177 8,551,930
=====================================================================
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.
F-29
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.
F-30
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
========== ==========
F-31
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.
F-32
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Costs
Capitalized Date of
Buildings & Subsequent Buildings & Accumulated Acquisition (a)
Description Encumbrances Land Improvements to Acquisition Land Improvements Total Depreciation Construction (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Shopping Centers
Circle Plaza (1) $ - $ 3,435 $ 13 $ 2 $ 3,446 $ 3,448 $ 1,293 1978(c)
Shamokin Dam, PA
Martintown Plaza (1) - 4,625 1,406 - 6,031 6,031 2,193 1985(a)
North Augusta, SC
Midway Plaza (1) 196 1,647 3,064 195 4,712 4,907 1,908 1984(a)
Opelika, AL
Northside Mall (1) 1,604 7,080 2,213 1,604 9,293 10,897 3,654 1986(a)
Dothan, AL
New Smyrna Beach
Shopping Center (1) 246 2,219 3,257 246 5,476 5,722 2,364 1983(a)
New Smyrna Beach FL
Wesmark Plaza - 380 3,419 2,249 370 5,678 6,048 2,022 1986(a)
Sumter, SC
King's Fairground (1) - 1,426 242 - 1,668 1,668 377 1992(a)
Danville, VA
Cloud Springs Plaza (1) 159 2,712 1,163 159 3,875 4,034 1,470 1985(a)
Ft Ogelthorpe, GA
Crescent Plaza 12,000 1,147 7,425 481 1,147 7,906 9,053 2,729 1984(a)
Brockton, MA
New Louden Centre (2) 505 4,161 9,623 505 13,784 14,289 3,769 1982(a)
Latham, NY
Ledgewood Mall (2) 619 5,434 25,438 619 30,872 31,491 12,375 1983(a)
Ledgewood, NJ
Troy Plaza (1) 479 1,976 811 479 2,787 3,266 1,431 1982(a)
Troy, NY
Birney Plaza (1) 210 2,979 719 210 3,698 3,908 3,121 1968(c)
Moosic, PA
Dunmore Plaza (1) 100 506 137 100 643 743 277 1975(a)
Dunmore, PA
Mark Plaza - - 4,268 3,831 - 8,099 8,099 3,491 1968(c)
Edwardsville, PA
Kingston Plaza (1) 305 1,745 390 305 2,135 2,440 1,203 1982(c)
Kingston, PA
Luzerne Street Plaza 2,000 35 315 1,208 35 1,523 1,558 751 1983(a)
Scranton, PA
Blackman Plaza - 120 - 1,291 120 1,291 1,411 25 1968(c)
Wilkes- Barre, PA
East End Centre 14,200 1,086 8,661 3,488 1,086 12,149 13,235 4,779 1986(c)
Wilkes-Barre, PA
Greenridge Plaza 6,700 1,335 6,314 595 1,335 6,909 8,244 2,647 1986(c)
Scranton, PA
Plaza 15 (1) 171 81 1,481 171 1,562 1,733 405 1976(c)
Lewisburg, PA
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Costs
Capitalized Date of
Buildings & Subsequent Buildings & Accumulated Acquisition (a)
Description Encumbrances Land Improvements to Acquisition Land Improvements Total Depreciation Construction (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Shopping Centers (cont.)
Plaza 422 $ (2) $ 190 $ 3,004 $ 414 $ 190 $ 3,418 $ 3,608 $ 1,957 1972(c)
Lebanon, PA
Tioga West (2) 48 1,238 3,144 48 4,382 4,430 1,809 1965(c)
Tunkhannock,PA
Mountainville Plaza (1) 420 2,390 486 420 2,876 3,296 1,435 1983(a)
Allentown, PA
Monroe Plaza (1) 70 2,083 67 70 2,150 2,220 979 1964(c)
Stroudsburg, PA
Ames Plaza (1) 57 1,958 182 57 2,140 2,197 1,633 1966(c)
Shamokin, PA
Route 6 Mall (2) - - 12,696 1,664 11,032 12,696 1,556 1995(c)
Honesdale , PA
Pittston Mall 3,950 1,500 - 5,695 1,521 5,674 7,195 626 1995(c)
Pittston , PA
Valmont Plaza 6,100 522 5,591 1,006 522 6,597 7,119 2,708 1985(a)
West Hazelton , PA
Manahawkin 5,760 2,400 9,396 4,918 3,105 13,609 16,714 1,362 1993(a)
Stafford Township, NJ
Twenty Fifth Street (1) 2,280 9,276 196 2,280 9,472 11,752 1,668 1993(a)
Easton, PA
Berlin Shopping Centre (2) 1,331 5,351 205 1,332 5,555 6,887 892 1994(a)
Berlin, NJ
Shillington Plaza (1) 809 3,268 32 809 3,300 4,109 474 1994(a)
Reading, PA
Union Plaza - - - 20,241 5,426 14,815 20,241 999 1996(c)
New Castle, PA
Bradford Towne Centre (2) - - 16,100 817 15,283 16,100 2,367 1994(c)
Towanda, PA
Atrium Mall 11,041 2,772 11,088 20 2,772 11,108 13,880 104 1998(a)
Abington, PA
Bloomfield Town Square 10,951 3,443 13,774 - 3,443 13,774 17,217 129 1998(a)
Bloomfield Hills, MI
Walnut Hill Plaza 9,455 3,122 12,488 292 3,122 12,780 15,902 132 1998(a)
Woonsocket, RI
Elmwood Park Plaza - 3,248 12,992 40 3,248 13,032 16,280 122 1998(a)
Elmwood Park, NJ
Merrillville Plaza - 4,288 17,152 319 4,288 17,471 21,759 161 1998(a)
Hobart, IN
Soundview Marketplace 6,989 2,428 9,711 62 2,428 9,773 12,201 91 1998(a)
Port Washington, NY
Marketplace of Absecon - 2,573 10,294 220 2,573 10,514 13,087 101 1998(a)
Absecon, NJ
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
Costs
Capitalized Date of
Buildings & Subsequent Buildings & Accumulated Acquisition (a)
Description Encumbrances Land Improvements to Acquisition Land Improvements Total Depreciation Construction (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Shopping Centers (cont.)
Hobson West Plaza $ 4,372 $ 1,793 $ 7,172 $ 79 $ 1,793 $ 7,251 $ 9,044 $ 67 1998(a)
Naperville, IL
Smithtown Shopping Center 8,268 3,229 12,917 862 3,229 13,779 17,008 141 1998(a)
Smithtown, NY
Town Line Plaza - 878 3,510 - 878 3,510 4,388 33 1998(a)
Rocky Hill, CT
Branch Shopping Center - 3,156 12,623 - 3,156 12,623 15,779 118 1998(a)
Village of the Branch, NY
Methuen Shopping Center - 956 3,826 - 956 3,826 4,782 36 1998(a)
Methuen, MA
Residential Properties
Gate House, Holiday House,
Tiger Village 8,425 2,312 9,247 53 2,312 9,300 11,612 87 1998(a)
Columbia, MO
Village Apartments 8,717 3,429 13,716 43 3,429 13,759 17,188 130 1998(a)
Winston Salem, NC
Glen Oaks Apartments 18,140 5,045 20,180 90 5,045 20,270 25,315 190 1998(a)
Greenbelt, MD
Colony Apartments 3,960 1,118 4,470 41 1,118 4,511 5,629 43 1998(a)
Columbia, MO
Marley Run Apartments 14,760 4,209 16,835 24 4,209 16,859 21,068 159 1998(a)
Baltimore, MD
Mixed Use Properties
Northwood Centre 22,599 1,209 6,204 18,095 1,188 24,320 25,508 12,609 1985(a)
Tallahasse, FL
Construction in Progress (5) - - 12,879 9,934 - 22,813 22,813 -
-------------------------------------------------------------------------------------
$277,561 $67,532 $325,061 $158,656 $76,136 $475,113 $551,249 $87,202
=====================================================================================
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:
for the year ended December 31,
1998 1997 1996
---- ---- ----
Balance at beginning of period $311,688 $307,411 $291,157
Acquisitions and adjustments related to development
options and establishment of note payable to the
Former Principal Shareholder - - (3,125)
Other improvements 16,647 7,480 19,380
Properties acquired 254,164 - -
Adjustment of carrying value of property held for sale (11,560) - -
Property held for sale (11,991) - -
Fully depreciated assets written off (3,350) (998) -
Sale of property (4,349) (2,205) (1)
---------------------------------------------
Balance at end of period $551,249 $311,688 $307,411
=============================================
(b) Reconciliation of accumulated Depreciation:
The following table reconciles accumulated depreciation from January 1, 1996 to
December 31, 1998:
for the year ended December 31,
1998 1997 1996
---- ---- ----
Balance at beginning of period $ 83,326 $ 72,956 $ 61,269
Sale of property (2,035) (905) -
Property held for sale (4,918) - -
Fully depreciated assets written off (3,350) (998) -
Depreciation related to real estate 14,179 12,273 11,687
---------------------------------------------
Balance at end of period $ 87,202 $ 83,326 $ 72,956
=============================================
EXHIBIT 10.1a
Amendment No. 1 to MARK CENTERS LIMITED PARTNERSHIP AGREEMENT, dated as of
the 3rd day of June 6, 1996 ("Agreement") by and among Mark Centers Trust and
Marvin L. Slomowitz.
WHEREAS, pursuant to Section 3.2C of the Agreement and a Subscription
Agreement, dated July 14, 1995, L&J Realty Company has subscribed for 2000 OP
Units;
WHEREAS, pursuant to Section 12C of the Agreement the General Partner
desires to amend the Agreement to admit L&J Realty Company as a Limited Partner.
NOW, THEREFORE, the Agreement is amended as follows:
1. Any capitalized terms herein which are not otherwise defined herein
shall have the same meaning as set forth in the Agreement.
2. L & J Realty Company is hereby admitted as a Limited Partner of the
Partnership.
3. Effective as of July 14, 1995 the total number of all OP units
outstanding is 9,553,000 and each Partner is deemed to hold OP Units as follows:
OP UNITS PERCENTAGE INTEREST
-------- --------------------
Company 7,751,000 81.14%
Limited Partner
Marvin L. Slomowitz 1,800,000 18.84%
Limited Partner
L & J Realty Company 2,000 .02%
4. Schedule A to the Partnership Agreement shall be deleted in its entirety
and shall be replaced with a new Schedule A which is annexed hereto.
5. The effective date of this Amendment No. 1 shall be July 14, 1995.
6. Except as amended by this Amendment No. 1, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the Company has executed this Amendment No. 1 as of the
14th day of July, 1995.
GENERAL PARTNER:
MARK CENTERS TRUST, a Maryland Real Estate Investment Trust
By: /s/ David S. Zook
------------------------------
Name: David S. Zook
Title: Executive Vice President
SCHEDULE A
PERCENTAGE INTEREST
General Partner 81.14%
Marvin L. Slomowitz 18.84%
L&J Realty .02%
EXHIBIT J
SECOND AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT
THIS SECOND AMENDMENT, dated as of August 12, 1998, to
that Limited Partnership Agreement, dated as of June 3, 1994, and as amended by
the First Amendment to the Partnership Agreement dated as of June 6, 1996 (the
"Partnership Agreement"), of MARK CENTERS LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Partnership"). Capitalized terms used herein but not
defined herein shall have the meanings given such terms in the Partnership
Agreement.
BACKGROUND
The Partnership is a party to a certain Contribution and Share
Purchase Agreement dated as of April 15, 1998 (the "Contribution Agreement")
pursuant to which, among other things, the Partnership has agreed to acquire
partnership interests in certain unaffiliated partnerships and real and personal
property owned by such partnerships and affiliates of such partnerships in
consideration for, among other things, Partnership Interests in the Partnership.
Pursuant to Section 3.2(B) of the Partnership Agreement, the General Partner of
the Partnership has the power and authority to issue additional Partnership
Interests to Persons in exchange for additional Capital Contributions. The
General Partner, pursuant to the exercise of such authority and in accordance
with Section 12(C) of the Partnership Agreement, has determined to execute this
Second Amendment to the Partnership Agreement to evidence: (i) the issuance of
additional Partnership Interests and the admission of the other signatories
hereto as Limited Partners of the Partnership and (ii) certain other amendments
to the Partnership Agreement.
NOW, THEREFORE, the parties hereto, for good and sufficient
consideration and intending to be legally bound, hereby amend the Partnership
Agreement as follows:
1. The Partnership Agreement is hereby amended to reflect the
admission as Limited Partners on the date hereof of those Persons whose names
are set forth on Annex "A" attached hereto and made a part hereof and whose
authorized signatures appear on the signature page hereto, each of whom shall
have such number of Partnership Interests as shall be set forth opposite such
signatory's name on Annex "A".
2. The Partnership Interests issued hereby shall have the same
rights, preferences, privileges and designations as the Limited Partner
Partnership Interests which have heretofore been issued by the Partnership,
including, but not limited to, the right to convert such Partnership Interests
into Common Shares of Beneficial Interest, par value, $.01 per share, of the
General Partner pursuant to Section 3.2(C) of the Partnership Agreement, as
amended hereby.
3. The second sentence of Section 3.2(B) of the Partnership
Agreement is hereby amended by adding the following underscored language as
follows:
"The number of OP Units issued to the Contributing
Party under clause (i) of this Section 3.2(B) shall
be equal to either (a) such amount as may be fixed by
agreement between the General Partner, in the General
Partner's sole discretion, and the Contributing Party
or (b) the quotient (rounded to the nearest whole
number arrived at by dividing..."
4. Section 3.2(C) of the Partnership Agreement is hereby
amended by adding to the end thereof the following sentence:
"If the Company is unable to issue Common Shares in
accordance with this Section 3.2(C) it shall redeem
the requested OP Units for cash for an amount equal
to the Market Price (as defined in Section 3.2(B))
calculated as if one OP Unit equaled one Common Share
(subject to the anti-dilution protections set forth
in this Section 3.2(C)."
5. Section 5 of the Partnership Agreement is hereby
amended by adding the following new paragraphs (D) through (G) at the end
thereof:
"D. The General Partner may not, without the consent
of all of the Limited Partners affected thereby,
change its policy of holding its assets and
conducting its business solely through the
Partnership, nor may any transactions described in
Section 5(E) or 5(F), without the consent of all the
Limited Partners affected thereby, be structured in a
manner which will change the General Partner's policy
of holding its assets and conducting its business
through the Partnership (or the Surviving Partnership
(defined below), if applicable)), if the result of
such transaction is the recognition of gain for
federal income tax purposes by such Limited Partners.
2
E. Whether or not Section 5(D) hereof is applicable,
the General Partner shall not, unless Section 5(F) is
applicable, engage in any merger, consolidation or
other combination with or into another person, sale
of all or substantially all of its assets or any
reclassification, recapitalization or similar
transaction (each a "Termination Transaction"),
unless such Termination Transaction is one in
connection with which each Limited Partner either
will receive, or will have the right to elect to
receive, for each OP Unit held by such Limited
Partner, an amount of cash, securities, or other
property equal to the product of the number of Common
Shares into which such OP Unit is convertible and the
greatest amount of cash, securities or other property
paid to a holder of one Common Share in consideration
of one Common Share pursuant to the terms of the
Termination Transaction; provided that; if, in
connection with the Termination Transaction, a
purchase, tender or exchange offer shall have been
made to and accepted by the holders of the
outstanding Common Shares, each holder of OP Units
shall receive, or shall have the right to elect to
receive, the greatest amount of cash, securities, or
other property which such holder would have received
had it exercised its exchange right (as set forth in
Section 3.2(C)) and received Common Shares in
exchange for its OP Units immediately prior to the
expiration of such purchase, tender or exchange offer
and had thereupon accepted such purchase, tender or
exchange offer and then such Termination Transaction
shall have been consummated.
3
F. Whether or not Section 5(D) hereof is applicable,
the General Partner may merge, or otherwise combine
its assets, with another entity without satisfying
the requirements of Section 5(E) hereof if: (i)
immediately after such merger or other combination,
substantially all of the assets directly or
indirectly owned by the surviving entity, other than
OP Units held by such General Partner, are owned
directly or indirectly by the Partnership or another
limited partnership or limited liability company
which is the survivor of a merger, consolidation or
combination of assets with the Partnership (in each
case, the "Surviving Partnership"); (ii) the Limited
Partners own a percentage interest of the Surviving
Partnership based on the relative fair market value
of the net assets of the Partnership (as determined
pursuant to Section 5(G)) and the relative fair
market value of the other net assets of the Surviving
Partnership (as determined pursuant to Section 5(G))
immediately prior to the consummation of such
transaction; (iii) the rights, preferences and
privileges of the Limited Partners in the Surviving
Partnership are at least as favorable as those in
effect immediately prior to the consummation of such
transaction and as those applicable to any other
limited partners or non-managing members of the
Surviving Partnership; and (iv) such rights of the
Limited Partners include the right to exchange their
interests in the Surviving Partnership for at least
one of: (A) the consideration available to such
Limited Partners pursuant to Section 5(E), or (B) if
the ultimate controlling person of the Surviving
Partnership has publicly traded common equal
securities, such common equity securities, with an
exchange ratio based on the relative fair market
value of such securities (as determined pursuant to
Section 5(G)) and the Common Shares.
G. In connection with any transaction permitted by
Section 5(E) or 5(F), the relative fair market values
shall be reasonably determined by the General Partner
in good faith as of the time of such transaction and,
to the extent applicable, shall be no less favorable
to the Limited Partners than the relative values
reflected in the terms of such transactions."
6. Section 7.6(A) of the Partnership Agreement is hereby
amended to change the reference to "Prop. Reg. ? 1.704-3(b)(1)" to "Regulations
Section
7. The first sentence of Section 12(B)(i) of the
Partnership Agreement is hereby amended and restated as follows:
4
"(i) No Limited Partner or substituted Limited
Partner shall, without the prior written consent of
the General Partner (which consent may be given or
withheld in the sole discretion of the General
Partner), sell, assign, distribute or otherwise
transfer (a "Transfer") all or any part of his
interest in the Partnership except by operation of
law, gift (outright or in trust) or by sale, in each
case to or for the benefit of a Permitted Transferee
(as defined below), except for (a) pledges or other
collateral transfers effected by a Limited Partner to
secure the repayment of a loan and (b) the exchange
of OP Units for shares of Common Stock of the
Company, pursuant to Section 3.2(C) above. For
purposes of this Section 12(B)(i), the term
"Permitted Transferee" means (i) any partner or other
equity owner of a Limited Partner; (ii) an equity
owner of any partner or other equity owner of a
Limited Partner; (iii) members of the Immediate
Family (as defined below) of any equity owner of a
Limited Partner (or any equity owner thereof) and
trusts for the benefit of one or more members of the
Immediate Family of the Limited Partner (or any
equity owner thereof) created for a state and/or gift
tax purposes and/or (iv) any public charity, public
foundation or charitable institution as defined in
Section 501(C)(3) of the Code. For purposes of this
Section 12(B)(i), the term "Immediate Family" means,
with respect to any natural person, such natural
person's spouse, parents, parents-in-law,
descendants, nephews, nieces, brothers, sisters,
brothers-in-law, sisters-in-law and children-in-law."
8. Section 16(A)(ii) of the Partnership Agreement is hereby
amended and restated as follows:
"(ii) except (x) as otherwise provided for in this
Agreement, (y) as required by law or (z) in the case
of technical modifications which do not have a
material adverse impact on any Partner, to modify the
allocation of Profits and Losses or distributions
among the Partners as provided for in Sections 7 and
8 above, respectively; or"
5
9. Section 16(A)(iii) of the Partnership Agreement is
hereby amended to include reference to Sections 5(D) through (G).
10. By execution of this Second Amendment to the Partnership
Agreement, each of the signatories hereto agrees to be bound by each and every
term of the Partnership Agreement as amended hereby from and after the date
hereof.
11. Except as expressly set forth in this Second Amendment,
the Partnership Agreement is hereby ratified and confirmed in each and every
respect.
IN WITNESS WHEREOF, this Second Amendment to the Limited
Partnership Agreement is executed and delivered as of the date first written
above.
MARK CENTERS TRUST,
General Partner
By: /s/ Joshua Kane
-----------------------
Joshua Kane
Title: Senior Vice President
---------------------
Limited Partners:
__________________________
__________________________
__________________________
__________________________
6
THIRD AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT
THIS THIRD AMENDMENT, dated as of December 17, 1998, to that
Limited Partnership Agreement, dated as of June 3, 1994, and as amended by the
First Amendment to the Partnership Agreement dated as of June 6, 1996 and as
amended by the Second Amendment to the Partnership Agreement dated as of August
12, 1998 (the "Partnership Agreement"), of ACADIA REALTY LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Partnership"). Capitalized terms used herein
but not defined herein shall have the meanings given such terms in the
Partnership Agreement.
BACKGROUND
The General Partner, pursuant to the exercise of such
authority and in accordance with Section 12(C) of the Partnership Agreement, has
determined to execute this Third Amendment to the Partnership Agreement to
evidence the assignment of certain Partnership Interests and the admission of
the other signatories hereto as Limited Partners of the Partnership.
NOW, THEREFORE, the parties hereto, for good and sufficient
consideration and intending to be legally bound, hereby amend the Partnership
Agreement as follows:
1. The Partnership Agreement is hereby amended to reflect (i)
the withdrawal of RD G.O. Properties, L.P. as a limited partner and (ii) the
admission as Limited Partners of those Persons whose names are set forth on
Annex "A" attached hereto and made a part hereof and whose authorized signatures
appear on the signature page hereto, each of whom shall have such number of
Partnership Interests as shall be set forth opposite such signatory's name on
Annex "A".
2. The Partnership Interests issued hereby shall have the same
rights, preferences, privileges and designations as the Limited Partner
Partnership Interests which have heretofore been issued by the Partnership,
including, but not limited to, the right to convert such Partnership Interests
into Common Shares of Beneficial Interest, par value, $.01 per share, of the
General Partner pursuant to Section 3.2(C) of the Partnership Agreement, as
amended hereby.
3. By execution of this Third Amendment to the Partnership
Agreement, each of the signatories hereto agrees to be bound by each and every
term of the Partnership Agreement as amended hereby from and after the date
hereof.
4. Except as expressly set forth in this Third Amendment, the
Partnership Agreement is hereby ratified and confirmed in each and every
respect.
5. This Third Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Third Amendment shall become
binding when one or more counterparts hereof, individually taken together, shall
bear the signatures of all of the parties reflected hereon as the signatories.
IN WITNESS WHEREOF, this Third Amendment to the Limited
Partnership Agreement is executed and delivered as of the date first written
above.
ACADIA REALTY TRUST,
General Partner
By: /s/ Kenneth F. Bernstein
---------------------------------
Kenneth F. Bernstein
Title: President
------------------------------
Substituted Limited Partners:
EVAN FRAZIER REALTY LLC
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: Member
RD GREENBELT, INC.
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: President
KAL PARTNERS L.P.
By: /s/ Gregory Manocherian
---------------------------------
Name: Gregory Manocherian
Title: General Partner
/s/ Michael A. Young
- ------------------------------------
MICHAEL A. YOUNG
/s/ Mindy White
- ------------------------------------
MINDY WHITE
2
S & J ROTH REVOCABLE TRUST
By: /s/ Stephen Roth
------------------------------------
Name: Stephen Roth
Title: Trustee
RABINOWITZ FAMILY 1991 TRUST
By: /s/ Martin J. Rabinowitz
------------------------------------
Name: Martin J. Rabinowitz
Title: Trustee
RABINOWITZ FAMILY 1986 TRUST
By: /s/ Steven M. Rabinowitz
------------------------------------
Name: Steven M. Rabinowitz, Esq.
Title: Trustee
Withdrawing Limited Partner:
RD G.O. PROPERTIES, L.P.
By: RD Greenbelt, Inc., its general
partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: President
3
ANNEX "A"
Name of Limited Partner Number of Partnership Interests
- ----------------------- -------------------------------
Evan Frazier Realty LLC 294,434
20 Soundview Marketplace
Port Washington, NY 11050
Taxpayer ID#: 11-3363230
RD Greenbelt, Inc. 55,011
20 Soundview Marketplace
Port Washington, NY 11050
KAL Partners L.P. 102,068
3 New York Plaza
18th Floor
New York, NY 10004
Taxpayer ID: 13-3928884
Michael A. Young 34,005
304 East 65th Street
Apt. 36B
New York, NY 10021
Soc. Sec. #: ###-##-####
Mindy White 17,029
44 Garden Road
Scarsdale, NY 10583
Soc. Sec. #: ###-##-####
S & J Roth Revocable Trust 25,517
c/o Stephen Roth, Trustee
301 Weyyakin Drive
P.O. Box 6120
Ketchum, ID 83340
Taxpayer ID #: ###-##-####
4
Name of Limited Partner Number of Partnership Interests
- ----------------------- -------------------------------
Rabinowitz Family 1991 Trust 21,247
c/o Martin J. Rabinowitz, Trustee
1500 Broadway
Suite 1020
New York, NY 10036
Taxpayer ID#: ###-##-####
Rabinowitz Family 1986 Trust 21,247
c/o Martin J. Rabinowitz,
1500 Broadway
Suite 1020
New York, NY 10036
Taxpayer ID#: 13-6950556
5
SEVERANCE AND CONSULTING AGREEMENT
THIS AGREEMENT dated this 15th day of April, 1998, is between
MARK CENTERS TRUST, a Maryland real estate investment trust (the "Company"),
MARK CENTERS LIMITED PARTNERSHIP (the "Partnership") and MARVIN SLOMOWITZ
("Slomowitz").
BACKGROUND
Slomowitz has been employed by the Company and the Partnership
since their inception, most recently as its chief executive officer and as a
director of the Company. There are no employment or severance agreements
currently in existence between the Company, the Partnership and Slomowitz other
than that certain Non-Competition Agreement between the Company and Slomowitz
dated as of June 3, 1993 (the "Non-Competition Agreement").
The Company and Slomowitz have agreed that in connection with
the reorganization of the Company as a result of the transactions (the
"Transactions") contemplated by that certain Contribution and Share Purchase
Agreement dated as of April 15, 1998 among the Company and certain other parties
("Contribution Agreement"), Slomowitz will resign as chief executive officer
effective as of the closing of the Transactions (the "Effective Date"). In this
regard, the Company has agreed to compensate Slomowitz in connection with his
resignation, his agreement to modify the terms of the Non-Competition Agreement,
his past assistance in ensuring a smooth transition and his agreement to
continue to assist the Company during the transition period.
NOW, THEREFORE, in consideration of the foregoing and the
mutual premises and covenants set forth herein, and intending to be legally
bound hereby, the Company, the Partnership and Slomowitz agree as follows:
1. Consulting and Real Estate Brokerage Services.
For a period of three (3) years from the Effective Date,
Slomowitz, upon request by the Company, shall provide the following services:
a. Consulting Services. Slomowitz shall provide consulting
services to the Company and its management on matters relating to, among other
matters, (i) assistance in implementing the terms of the Transaction; (ii)
facilitating the smooth transition in management; and (iii) other matters
regarding the future operations of the Company.
Slomowitz shall perform such consulting services as called
for hereunder at such time or times and to such extent as he shall reasonably
determine is reasonably necessary to perform the services requested by the
Company pursuant to this Agreement. The services shall be of a nature consistent
with those performed by the chief executive officer and shall be performed in
such manner and place, including his office, as he reasonably determines to be
necessary or advisable.
b. Brokerage Services. Slomowitz shall provide non-exclusive
real estate brokerage services in connection with the sale of the Contributed
Properties (defined below) set forth on Schedule B.
Slomowitz shall perform such real estate brokerage services
as called for hereunder at such time or times and to such extent as he shall
reasonably determine is reasonably necessary to perform the services requested
by the Company pursuant to this Agreement. Notwithstanding the foregoing, it is
understood that the Company shall have the right to determine whether or not to
enter into, to proceed with or consummate the conveyance of a property.
2. Compensation.
1. In consideration for his resignation as an officer of
the Company and the services previously provided to the Company, the Company
shall pay to Slomowitz on the Effective Date cash in the sum of Six Hundred
Thousand Dollars ($600,000).
2. In consideration of the sum of (i) Two Hundred Thousand
Dollars ($200,000) for agreeing to enter into the Restated Non-Competition
Agreement (defined below) and (ii) One Hundred Thousand Dollars ($100,000) for
providing the consulting services to be provided hereunder, the Company shall
pay to Slomowitz cash in the aggregate sum of Three Hundred Thousand Dollars
($300,000) payable as follows: $100,000 on the Effective Date; $100,000 on the
first anniversary of the Effective Date and $100,000 on the second anniversary
of the Effective Date.
3. In consideration for the real estate brokerage services
to be provided hereunder, the Company shall pay to Slomowitz 2.0% of the gross
sale price of each property on Schedule B up to a maximum aggregate commission
of Six Hundred Thousand Dollars ($600,000) (the "Maximum Commission"). Slomowitz
shall be entitled to such commission whether or not he is the broker of record
with respect to the sale of such properties. Such commission or any part thereof
shall not be considered earned and shall not be due and payable unless and until
the full purchase price as agreed upon is paid to the Company and title actually
passes to the buyer, all in accordance with any contract of sale entered into
between the Company and the buyer. Slomowitz agrees that the proceeds of the
sale of each such property shall be the sole source of payment of the
commission. Slomowitz agrees that he shall be responsible for all out-of-pocket
and overhead costs (other than as set forth in Section 5 hereof) incurred in
connection with the real estate brokerage services provided by him pursuant to
this Agreement, it being acknowledged and agreed that the Maximum Commission
shall be the exclusive fee earned by Slomowitz for his real estate brokerage
services provided hereunder.
2
3. Health Benefits.
The Company shall continue the payment of all premiums on
health insurance coverage for Slomowitz and his wife under the Company's group
medical plan, as the same may be with respect to all executive employees amended
from time to time, for a period of five (5) years from the Effective Date.
4. Share Options.
1. As of the Effective Date, the Company shall grant to
Slomowitz options to purchase 300,000 of its common shares of beneficial
interest ("Common Shares") at a price of $9.00 per Common Share which shall vest
as follows: 100,000 options on the Effective Date; 100,000 options on the first
anniversary of the Effective Date and 100,000 options on the second anniversary
of the Effective Date. The options shall expire ten (10) years from the
Effective Date. The terms of the options shall otherwise be subject to the
Company's 1994 Share Option Plan, as it may be amended from time to time. Such
options and the underlying Common Shares shall be subject to such restrictions
against transfer and with such registration rights as shall apply on the date of
exercise to the most senior of the Company's officers.
2. As of the Effective Date, all existing options for
Common Shares held by Slomowitz (i.e. options to purchase 200,000 Common Shares
at $12.00 per Common Share) shall be canceled.
5. Support Services and Expenses.
The Company shall, at its sole cost and expense, continue
to provide Slomowitz with the use of his and his bookkeeper's current office
space at its offices in Kingston, Pennsylvania for use by himself and his
bookkeeper. In the event the Company relocates its offices from the Kingston
building in which Slomowitz's offices are located, the Company no longer shall
have any obligation to provide office space to Slomowitz or his bookkeeper.
6. Maintenance of Auto Lease Payments.
For the period from the Effective Date through and
including October 1, 1999, the Company shall continue to make the scheduled
monthly lease payments pursuant to the automobile lease, dated as of November 1,
1995, by and between Slomowitz, as the lessee, and Ertley Motors, as the lessor.
3
7. Independent Contractor and Indemnification.
In the performance of this Agreement, it is mutually
understood and agreed that Slomowitz is at all times acting and performing as an
independent contractor, and not an employee of the Company, and nothing
contained herein shall be construed as appointing Slomowitz as agent of the
Company, or authorizing him to represent the Company in any matter. Except as
otherwise set forth herein, the Company shall neither have nor exercise any
control or direction over the specific methods by which Slomowitz shall perform
services hereunder. Slomowitz understands and agrees that the Company will not
withhold from payments provided hereunder any funds for income tax, unemployment
insurance, social security or any other withholding pursuant to any law or
requirement of any governmental body and all of such payments that may be
required by law are the sole responsibility of Slomowitz.
Further, Slomowitz shall indemnify the Company for the
amount (including any penalties and legal fees relating thereto) which the
Company may be required to pay as a result of a determination that Slomowitz is
an employee to the extent that the Company would have had to withhold funds from
payments made by the Company hereunder if Slomowitz had been employed by the
Company from the Effective Date.
8. Services for Others.
Nothing in this Agreement shall preclude Slomowitz from
engaging in any activity, including such as may now or hereafter be engaged in
by Company, except as expressly provided by the amended and restated
Non-Competition Agreement set forth on Exhibit A, which Slomowitz shall execute
and deliver to the Company on the Effective Date (the "Restated Non-Competition
Agreement")
9. Mutual Releases.
For and in consideration of the transactions contemplated in
this Agreement and the execution of the Restated Non-Competition Agreement, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
grant the following mutual releases:
1. Company/Partnership Release
The Company and the Partnership (collectively, the "Company
Releasors") hereby release and forever discharge Slomowitz, his agents,
servants, employees, heirs and assigns, and all other persons, firms and
corporations with whom and which he is, was, or in the future may be, related or
affiliated, both directly and indirectly (collectively, the "Slomowitz
Releasees"), from any and all claims, demands, actions and causes of action, and
all liability whatsoever (collectively "Losses,") on account of or in any manner
arising or to arise out of actions or inactions by the Slomowitz Releasees at
any time before the date hereof, whether released or indemnified against under
this Agreement, the by-laws of the Company, the Partnership's Limited
Partnership Agreement or the Contribution Agreement; excluding, however, (i) the
enforceability of the covenants, representations and warranties under the terms
of this Agreement; (ii) the enforceability of the Restated Non-Competition
Agreement; (iii) the willful misconduct or gross negligence of the Slomowitz
Releasees, which is injurious to the Company and/or the Partnership; (iv) the
Slomowitz Releasees conviction of, or plea of guilty to, a felony; (v) actions
which are ultra vires or otherwise outside the scope of Slomowitz's authority as
chief executive officer and/or director of the Company; and (vi) acts of
dishonesty or fraud by the Slomowitz Releasees with respect to the Company
and/or the Partnership; provided, however, that the foregoing exclusions (i)
through (vi) shall not apply to those activities, transactions and matters by,
between and among the Company Releasors and the Slomowitz Releasees
("Activities") which prior to the Effective Date have been disclosed by the
Slomowitz Releasees to the Company Releasors other than new facts with respect
to such Activities which were not disclosed to the Company Releasors prior to
the date hereof.
4
The execution of this instrument by the Company Releasors
releases the Slomowitz Releasees of and from all Losses, known or unknown at the
time of the execution of this instrument, which have resulted or may hereafter
result, or which may hereafter be discovered, and which relate in any way to the
subject matter of this Section 9.a.
2. Slomowitz Release
Slomowitz, his agents, servants, employees, heirs and
assigns, and all other persons, firms and corporations with whom and which he
is, was, or in the future may be, related or affiliated, both directly and
indirectly (collectively the "Slomowitz Releasors"), hereby release and forever
discharge the Company, the Partnership, their respective officers, directors,
trustees and employees and other persons, firms and corporations with whom and
which they are, were, or in the future may be, related or affiliated, both
directly and indirectly (collectively, the "Company Releasees") from any and all
Losses on account of or in any manner arising or to arise out of actions or
inactions by the Company Releasees at any time before the date hereof, whether
indemnified against under the Contribution Agreement or this Agreement;
excluding, however, (i) the enforceability of the covenants, representations and
warranties made by the Company Releasees under the terms of this Agreement or
the Contribution Agreement, and (ii) the indemnification provisions contained in
this Agreement, the by-laws of the Company and the Limited Partnership Agreement
of the Partnership.
The execution of this instrument by the Slomowitz Releasees
releases the Company Releasees of and from all Losses, known or unknown at the
time of the execution of this instrument, which have resulted or may hereafter
result, or which may hereafter be discovered, and which relate in any way to the
subject matter of this Section 9.b.
5
10. Indemnification.
1. (i) Those provisions of the by-laws of the Company and
of the Agreement of Limited Partnership of the Partnership with respect to
indemnification, advancement of expenses and limitation on liability for the
benefit of the trustees, officers, employees and consultants set forth therein,
shall not be amended, repealed, or otherwise modified for a period of six (6)
years after the Effective Date in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Effective Date
were trustees or officers of the Company in respect of actions or omissions
occurring at or prior to the Effective Date (including, without limitation, the
transactions contemplated by this Agreement), unless such modification is
required by law.
(ii) From and after the Effective Time, the Company and
the Partnership shall indemnify, defend and hold harmless Slomowitz to the same
extent as any other present and former officers and trustees of the Company
(collectively with Slomowitz, the "Indemnified Parties") against all losses,
expenses, claims, damages or liabilities, or amounts that are paid in settlement
of, or otherwise in connection with, any claim, action, suit, proceeding or
investigation (a "Claim"), based in whole or in part on the fact that such
person is or was a trustee, officer, employee or agent of the Company or any
Subsidiary thereof (including the Partnership) and arising out of actions or
omissions occurring at or prior to the Effective Date, in each case to the full
extent permitted under Maryland law as it pertains to the Company and under
Delaware law as it pertains to the Partnership (and shall pay in advance of the
final disposition of any action or proceeding to each Indemnified party to the
fullest extent permitted by Maryland law and Delaware law, as the case may be,
upon receipt from the Indemnified Party to whom expenses are advanced of an
undertaking to repay such advances in the event that it shall be finally
judicially determined that indemnification and the payment of such advances is
not permissible under applicable law).
(iii) Without limiting the foregoing, in the event any
Claim is brought against any Indemnified Party (whether arising before or after
the Effective Date) after the Effective Date: (A) the Indemnified Parties may
retain the Company's regularly engaged independent legal counsel, or other
independent legal counsel satisfactory to them provided that such other counsel
shall be reasonably acceptable to the Company; (B) the Company shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (C) the Company will use their
reasonable best efforts to assist in the vigorous defense of any such matter,
provided that the Company shall not be liable for any settlement of any Claim
effected without its written consent, which consent shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 10.a, upon learning of any such Claim, shall notify the Company
(although the failure so to notify the Company shall not relieve the Company
from any liability which the Company may have under this Section 10.a except to
the extent such failure prejudices the Company, and shall deliver to the Company
and to the Partnership the undertaking contemplated by the Maryland law and the
Delaware law, respectively). The Indemnified Parties as a group may retain one
law firm (in addition to local counsel) to represent them with respect to each
such matter unless there is, under applicable standards of professional conduct
(as reasonably determined by counsel to the Indemnified Parties), a conflict on
any significant issue between the positions of any two or more Indemnified
Parties in which event, such additional counsel as may be required may be
retained by the Indemnified Parties.
6
(iv) The Company shall cause to be maintained in effect
for not less than six (6) years after the Effective Date the current policies of
trustees' and officers' liability insurance maintained by the Company with
respect to matters occurring prior to the Effective Date; provided, however,
that the Company may substitute therefor policies of substantially similar
coverage containing substantially similar terms and conditions to the extent
reasonably available and the Company shall not be required to pay an annual
premium for such insurance in excess of 200% of the last annual premium paid
prior to the date of this Agreement, but in such case shall purchase as much
coverage as possible for such amount.
(v) This Section 10.a is intended to be for the benefit
of, and shall be enforceable by, the Indemnified Parties, their heirs and
personal representatives, shall be binding on the Company and its and their
respective successors and assigns, and shall not be amended or modified to
adversely affect any such party without the prior written consent of such party.
2. Supplementing and in addition to Slomowitz's right to
indemnification for Losses under and pursuant to the indemnification provisions
contained in Section 10.a hereof or the Company's by-laws and the Partnership's
Limited Partnership Agreement, the Company and the Partnership agree that (i)
with respect to Losses for which Slomowitz is entitled to indemnification they
will not settle or otherwise resolve any Claim asserted or imposed against them,
or either of them, and Slomowitz, jointly or severally, without simultaneously
settling or otherwise resolving the Claim asserted or imposed against Slomowitz;
and (ii) such indemnification provisions shall apply to any Activities which
prior to the Effective Date have been disclosed by the Slomowitz Releasees to
the Company Releasors, provided Slomowitz's Losses are not related to new facts
with respect to such Activities which were not disclosed to the Company
Releasors prior to the date hereof.
11. Voting Arrangements; Consents. Slomowitz hereby agrees (a)
as a shareholder of the Company, to vote any Common Shares which he directly or
indirectly owns or controls in favor of the Transactions; (b) as a limited
partner of the Partnership, (i) to execute any amendment to the Partnership's
Agreement of Limited Partnership required pursuant to the Contribution Agreement
(the "Amendment") and (ii) that by execution of this Agreement Slomowitz hereby
consents to the Amendment.
7
12. Agreements Respecting Properties Previously Owned by
Slomowitz.
1. Guaranty or Indemnity. Slomowitz has previously
contributed to the Partnership the properties set forth on Schedule A (the
"Contributed Properties"). At the Effective Date, or at any time subsequent
thereto in accordance with the terms hereof, the Company and the Partnership and
its respective subsidiaries will permit the Slomowitz to guarantee, or indemnify
the Company, the Partnership and their respective subsidiaries for, the "bottom"
portion (i.e., the least risky portion) of indebtedness of the Partnership. In
the event that other partners of the Partnership or any subsidiary (including
future contributors) similarly require a guarantee or indemnity of indebtedness
of the Company, the Partnership and/or their respective subsidiaries, and such
guarantee of indemnity of indebtedness is the "bottom" portion of the
indebtedness of the Partnership, then all such partners (including Slomowitz)
shall share pari passu in the "bottom" portion of such indebtedness.
Notwithstanding the previous sentence, the Company and the Partnership agree to
maintain (or make available for the benefit of Slomowitz) (i) during the
Restricted Period (as defined below) an amount of indebtedness equal to
$55,000,000, and (ii) after the Restricted Period any debt encumbering the
Contributed Properties, solely for Slomowitz to guarantee (or indemnify the
Company, the Partnership or their respective subsidiaries for such
indebtedness). In the event that during the Restricted Period Slomowitz
guarantees or indemnifies the Company, the Partnership, or their respective
subsidiaries with respect to indebtedness encumbering any property of the
Company, the Partnership or any subsidiary, such indebtedness shall not exceed
sixty (60%) percent of the fair market value of such property, as determined by
a majority of the disinterested trustees of the Company. The Company and the
Partnership agree, and shall cause their respective subsidiaries to agree, to
take any and all action reasonably designed so that the execution of each
guarantee or indemnity by Slomowitz results in tax basis for Slomowitz for
federal income tax purposes.
2. No Property Disposition. Except as set forth in Section
12.d, the Company and the Partnership covenant that they shall not sell,
transfer, distribute or otherwise dispose, nor permit any of their respective
subsidiaries to sell, transfer, distribute or otherwise dispose, of the
Contributed Properties (including, but not limited to, the stock of any
corporations) (or the properties, if any, that are substituted or exchanged for
the Contributed Properties), prior to the fifth anniversary of the Effective
Date (the "Restricted Period") other than an exchange or other disposition which
does not cause Slomowitz to recognize gain for federal income tax purposes
(including, without limitation, a transaction pursuant to Section 1031 of the
Code or any successor provision which would not cause such recognition of gain).
Before the end of the Restricted Period, the Company, the Partnership or any of
their respective subsidiaries shall have the right to dispose of or distribute
any of the Contributed Properties in a taxable transaction provided the Company,
the Partnership and/or such subsidiary pays to Slomowitz the Tax Payment (as
defined below). Nothing contained in this Section 12.b shall be deemed to be
construed to limit the rights of any lender or other secured party to foreclose
on, or otherwise dispose of, the Contributed Properties, or, of the Partnership
to dispose of the Contributed Properties; provided, however, the Company, the
Partnership and/or such subsidiary shall pay to Slomowitz the Tax Payment, if
any, triggered by any taxable disposition of the Contributed Properties (other
than as a result of a foreclosure) prior to the expiration of the Restricted
Period. The term "Tax Payment" as used herein means an amount equal to the sum
of (i) the federal, state, and local income Taxes actually payable by Slomowitz
resulting from the recognition of gain and (ii) an additional payment in an
amount equal to the amount such that, after payment by Slomowitz of all Taxes
(including interest and penalties) on amounts received under clause (i) and this
clause (ii), Slomowitz retains an amount equal to the amount described in clause
(i).
8
3. Right of Redemption.
1. Except as set forth in Section 12.d, in the event that
after the end of the Restricted Period and prior to the second (2nd) anniversary
of the termination of the Restricted Period, the Company, the Partnership or any
of their respective subsidiaries desires to sell or otherwise desire to dispose
of (through foreclosure or otherwise), or receive an unsolicited offer to
purchase any Contributed Property after the Restricted Period, which offer the
Company, the Partnership or such subsidiary wishes to accept, and provided that
Slomowitz has given notice to the Company in December of the calendar year
immediately preceding the calendar year in which occurs such proposed sale or
disposition to the effect that Slomowitz desires to receive any Offering Notice
(as described below) required to be sent during the next calendar year; the
Company, the Partnership or such subsidiary shall give notice (the "Offering
Notice") thereof to Slomowitz. The Offering Notice shall specify the nature of
the sale and the consideration and other terms upon which it intends to
undertake such sale, and shall specify that the failure of Slomowitz to respond
within the time period set forth below shall be deemed an election by Slomowitz
not to purchase the Contributed Property. Within thirty (30) days from the date
of the Offering Notice, Slomowitz may elect, by written notice to the Company,
to purchase the Contributed Property. If Slomowitz elects to so purchase the
Contributed Property as aforesaid, then such purchase shall be consummated on
the terms and conditions set forth in the Offering Notice; provided, however, to
the extent that the Contributed Property is then subject to separately allocated
debt and the lender thereof consents to Slomowitz assuming such debt at no cost,
expense or liability to the Company, the Partnership or any subsidiary, the
Company shall cause the Contributed Property to be conveyed to Slomowitz subject
to such debt.
2. Slomowitz may use units of limited partnership in the
Partnership ("OP Units") as currency, in whole or in part, in connection with
the purchase of the Contributed Property from the Company, Partnership or any
subsidiary pursuant to an election made in accordance with Section 12.c.i. In
addition, as part of a transfer of the Contributed Property pursuant to a
foreclosure proceeding with respect to any debt secured by the Contributed
Property, if Slomowitz can cause the third party which is otherwise to obtain
title to the Property to accept OP Units in whole or in part, in lieu of
obtaining title to the Contributed Property (and without modifying any other
terms in the agreement of sale or transfer which has been executed in respect of
such Contributed Property), Slomowitz shall have the right to do so provided
that such third party agrees in writing for the benefit of the Partnership to be
bound by all of the terms and conditions of the Agreement of Limited Partnership
of the Partnership and, in accordance therewith, compliance with all
requirements pertaining to a transfer of OP Units (other than the need to obtain
the consent of the general partner of the Partnership, which consent is deemed
to be given pursuant to the terms of this Section 12.c; in such event, title to
the Property shall be transferred to Slomowitz in redemption of the OP Units
described above.
9
3. If within the thirty (30) day period during which
Slomowitz has the right to elect to purchase the Contributed Property under the
Offering Notice, Slomowitz does not make the election or fails to respond to the
Offering Notice, the Company, the Partnership or their subsidiary may undertake
to sell the Contributed Property on such terms and conditions as it shall elect;
provided, however, that the sale of the Contributed Property to which the
Offering Notice pertains shall not be consummated at less than ninety percent
(90%) of the price as specified in the Offering Notice unless the Company, the
Partnership or the subsidiary again offers the Contributed Property to Slomowitz
upon such more favorable terms and conditions. If Slomowitz notifies the Company
of his intention not to purchase the Contributed Property as set forth in the
revised Offering Notice, or if Slomowitz does not respond to the revised
Offering Notice within the prescribed thirty (30) day period, then the Company,
the Partnership or the subsidiary may consummate the sale at any time
thereafter. In such event, Slomowitz shall have no further right of redemption
as against the party to whom the Company, the Partnership or the subsidiary
transferred title to the Contributed Property; provided, however, that
Slomowitz's right of redemption hereunder shall apply to any real property
received by the Company, the Partnership or a subsidiary and in an exchange for
the Contributed Property, whether said property represents all or only a part of
the consideration for the transfer of the Contributed Property.
4. In the event that Slomowitz elects to purchase the
Contributed Property pursuant to this Section 12.c, the Company agrees to
cooperate with Slomowitz at no cost, expense or liability to the Company to
cause debt to be placed on the Contributed Property immediately prior to the
closing of the conveyance of the Contributed Property; provided that: (1)
Slomowitz arranges for such debt at his sole cost and expense; (2) Slomowitz is
unconditionally and irrevocably prepared to close such conveyance immediately
after said closing of the loan; and (3) Slomowitz agrees to assume the debt and
thereafter assumes the same at the closing and the Company, the Partnership and
all of their respective subsidiaries are released of all liability thereunder
immediately following the closing of the conveyance of the Contributed Property.
5. Notwithstanding anything herein to the contrary, the
provisions of Section 12.b. and c. shall not apply to those properties set forth
on Schedule C, which the Company, the Partnership or their subsidiary may sell
or otherwise transfer without restriction. The provisions of Section 12.a. shall
not apply to any Contributed Properties sold pursuant to this Agreement.
10
13. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and shall not
be modified or changed in any respect except in writing duly signed by the
parties hereto.
14. Term; Termination.
1. This Agreement shall terminate five (5) years after the
Effective Date.
2. This Agreement may be terminated at any time prior to
its expiration as set forth in Section 14(a) hereof (i) by mutual agreement of
the parties hereto, (ii) by Slomowitz voluntarily upon thirty (30) days written
notice to the Company, or (iii) by the Company for cause upon written notice to
Slomowitz.
3. The Company shall be entitled, at its discretion, to
terminate this Agreement for cause whenever: (i) Slomowitz shall be convicted of
a felony involving the Company's business, assets or employees; or (ii) after
written notice specifying the nature and occurrence of the following misconduct
or breach and a period of 30 days within which to corrrect, or if not
correctable, then to cease, the continuation of such breach or misconduct,
Slomowitz (1) commits a material breach of this Agreement, the Restated
Non-Competition Agreement or any other agreement with the Company; (2)
misappropriates confidential and proprietary information of the Company; (3)
engages in willful misconduct with respect to the Company's business, assets or
employees causing a disruption of the Company's business, or (4) engages in any
other verifiable misconduct adversely affecting the business reputation of the
Company in a material manner.
4. In the event this Agreement is terminated as set forth
in Section 14(b) or 14(c) hereof or Slomowitz's death, Slomowitz shall no longer
be entitled to, and the Company shall cease to provide or make available to
Slomowitz, the compensation and other benefits set forth in Sections 2.b and c.,
3, 4, and 6 hereof and any unvested options issued pursuant to Section 4 shall
be canceled.
5. The provisions of Sections 7, 8, 9, 10 and 12 shall
survive the expiration or earlier termination of this Agreement.
15. Governing Law.
This Agreement shall be governed by, and interpreted,
construed and enforced in accordance with the laws of the State of Pennsylvania.
16. Captions.
Captions in this Agreement are solely for purposes of
identification and shall not in any manner alter or vary the interpretation or
construction of this Agreement.
11
17. Notice Provisions.
Any notices or other communications required or permitted
hereunder shall be sufficient if in writing and delivered by hand or sent by
telecopy, or sent, postage prepaid, by U.S. Post Office express-mail, or by
recognized overnight air courier service and shall be deemed given when so
delivered by hand, or telecopied, or if mailed or sent by overnight courier
service, on the scheduled delivery date, to the parties at the following
addresses:
1. if to the Company, to:
805 Third Avenue
New York, New York 10022
Attention: Kenneth F. Bernstein
Telephone No.: (212) 421-8830
Facsimile No.: (212) 421-2290
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Mark Schonberger
Telephone No.: (212) 856-6859
Facsimile No.: (212) 856-7820
2. if to Slomowitz, to:
Marvin Slomowitz
600 Third Avenue
Kingston, Pennsylvania 18704
Telephone No.: (717) 288-4581, (212) 737-4405
and (561) 479-0995
Facsimile No.: (717) 288-1028, (212) 570-5634
and (561) 479-0226
12
with a copy to:
Rosenn, Jenkins & Greenwald, L.L.P.
15 South Franklin Street
Wilkes-Barre, Pennsylvania 18711
Attention: Eugene Roth, Esq.
Telephone No.: (717) 826-5636
Facsimile No.: (717) 821-4714
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein.
18. Successors and Assigns.
All terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors and assigns of the Company, and in the event of the death or
incapacity of Slomowitz, his heirs or personal representatives. Slomowitz shall
not assign, sell or transfer this Agreement, his obligations hereunder or any
interest herein.
19. Effectiveness.
This Agreement shall not be effective unless and until the
closing of the Transactions under the Contribution Agreement has occurred.
20. Further Assurances. The parties agree to (a) furnish upon
request to each other such further information, (b) execute and deliver to each
other such other documents, and (c) do such other acts and things, all as the
other party may reasonably request for the purpose of consummating the
Transactions and carrying out the intent of this Agreement and the Contribution
Agreement and the documents referred to in this Agreement and the Contribution
Agreement.
[SIGNATURE PAGE FOLLOWS]
13
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the date first above written.
MARK CENTERS TRUST
By: /s/ Joshua Kane
---------------------------------------
Name:
Title:
MARK CENTERS LIMITED PARTNERSHIP
By: Mark Centers Trust, general partner
By: /s/ Joshua Kane
---------------------------------
Name: Joshua Kane
Title: Senior Vice President
/s/ Marvin Slomowitz
------------------------------------------
Marvin Slomowitz
14
Schedule A
----------
25th Street
Blackman
Kingston Plaza
Ledgewood
Manahwakin
Mark Plaza
New Louden
Birney Plaza
Circle Plaza
Crescent Plaza
Dunmore
East End
Greenridge
Luzerne
Monroe
Mountainville
Northside
Northwood
Plaza 422
Route 6
Shillington
Troy Plaza
Union
Wesmark
Normandale
Ames Plaza
Plaza 15
New Smyrna
Searstown
Pittston
Berlin
Bradford
Tioga
Valmont
Auburne
Cloud Springs
Kings Fairground
Martintown
Midway
New Castle
Schedule B
----------
Pittston
Berlin
Bradford
Auburne
Towanda
Tioga
Valmont
Cloud Springs
Kings Fairground
Schedule C
----------
Pittston
Berlin
Bradford
Auburne
Towanda
EMPLOYMENT AGREEMENT
FOR
ROSS DWORMAN
TABLE OF CONTENTS
Page
1 Employment....................................................... 1
2 Employment Period................................................ 1
3 Services/Place of Employment..................................... 2
4 Compensation and Benefits ....................................... 3
5 Termination of Employment and Change in Control.................. 5
6 Compensation Upon Termination of Employment By the
Trust for Cause or By Executive without Good Reason.............. 8
7 Compensation Upon Termination of Employment Upon Death
or Disability.................................................... 8
8 Compensation Upon Termination of Employment By the
Trust Without Cause or By Executive for Good Reason.............. 10
9 Change in Control................................................ 11
10 Mitigation/Effect on Employee Benefit Plans and Programs......... 13
11 Confidential Information......................................... 13
12 Return of Documents.............................................. 14
13 Non-compete...................................................... 14
14 Remedies......................................................... 15
15 Indemnification/Legal Fees....................................... 15
16 Successors and Assigns........................................... 16
17 Timing of and No Duplication of Payments......................... 17
18 Modification or Waiver........................................... 17
19 Notices.......................................................... 18
20 Governing Law.................................................... 18
21 Severability..................................................... 18
22 Legal Representation............................................. 18
23 Counterparts..................................................... 18
24 Headings......................................................... 19
25 Entire Agreement................................................. 19
26 Survival of Agreements........................................... 19
27 Prior Agreements................................................. 19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of October 23, 1998, by and between Ross Dworman, an individual residing in the
State of New York ("Executive"), and Acadia Realty Trust, a Maryland real
estate investment trust with offices at 805 Third Avenue, New York, New York
10022 (the "Trust").
RECITALS
WHEREAS, Executive previously held the positions of President and Chief
Executive Officer ("CEO") of RD Capital, Inc. ("RDC") and, through such
service, acquired special and unique knowledge, abilities and expertise;
WHEREAS, in connection with RDC's acquisition of control of the Trust
(the "RDC Acquisition") the Trust desires to employ Executive as Chairman and
CEO and to have Executive serve as a member of the Board of Trustees of the
Trust (the "Board") , and Executive desires to be employed by the Trust as
Chairman and CEO and serve as a member of the Board pursuant to the terms of
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. Employment.
The Trust hereby agrees to employ Executive, and Executive hereby
agrees to accept such employment during the period and upon the terms and
conditions set forth in this Agreement.
2. Employment Period.
(a) Except as otherwise provided in this Agreement to the
contrary, the terms and conditions of this Agreement shall be and remain in
effect during the period of employment (the "Employment Period") established
under this Paragraph 2. The Employment Period shall be for a minimum term
commencing on the date of this Agreement and ending on the third anniversary of
the date of this Agreement (the "Initial Employment Term"). Following the
expiration of the Initial Employment Term, the Employment Period shall
automatically be renewed and extended from day to day until either (i)
terminated by the Trust pursuant to a written notice given to the Executive in
accordance with Paragraph 19 at least six (6) months prior to the effective date
of such termination (the "Six Month Notice of Non-Renewal"), or (ii) the
Executive's employment otherwise terminates hereunder; it being understood,
however, that in no event shall any Six Month Notice of Non-Renewal be effective
prior to the final day of the Initial Employment Term.
(b) Notwithstanding anything contained herein to the contrary:
(i) Executive's employment with the Trust may be terminated by the Trust or
Executive at any time during the Employment Period other than as provided in
subparagraph 2(a) hereof, subject to the terms and conditions of this
Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of Executive's employment following the expiration of the
Employment Period upon such terms and conditions as the Board and Executive may
mutually agree.
(c) If Executive's employment with the Trust is terminated,
for purposes of this Agreement the term "Unexpired Employment Period" shall
mean the period commencing on the date of such termination and ending, (i) in
the case of termination pursuant to a Six Month Notice of Non-Renewal given and
made effective in accordance with subparagraph 2(a) hereof, on the effective
date of termination set forth therein, or (ii) in all other circumstances of
termination, the later of (A) the final day of the Initial Employment Term or
(B) six (6) months after the giving of notice by the terminating party or the
occurrence of such other event that automatically results in termination.
3. Services/Place of Employment.
(a) Services. During the Employment Period, Executive shall
hold the position of Chairman and CEO of the Trust and shall serve as a member
of the Board. Executive shall devote his best efforts and such business time,
skill and attention to the business of the Trust(other than absences due to
vacation, illness, disability or approved leave of absence) as in the
reasonable business judgment of the Executive is necessary to perform such
duties as are customarily performed by similar executive officers and as may be
more specifically enumerated from time to time by the Board or Executive
Committee of the Board; provided, however, that the foregoing is not intended
to (x) preclude Executive from (i) owning and managing personal investments,
including real estate investments, subject to the restrictions set forth in
Paragraph 13 hereof or (ii) engaging in charitable activities and community
affairs, or (y) restrict or otherwise limit Executive from conducting real
estate development, acquisition or management activities with respect to those
properties described in Schedule A, attached hereto (the "Excluded
Properties"), provided that the performance of the activities referred to in
the preceding clauses (x) and (y) does not, in the reasonable business judgment
of the Executive, prevent Executive from devoting sufficient business time to
the Trust to carry out Executive's duties as Chairman and CEO.
(b) Place of Employment. The principal place of employment of
Executive shall be at the Trust's executive offices in New York, New York and
Port Washington, New York.
4. Compensation and Benefits.
(a) Salary. During the Employment Period, the Trust shall pay
Executive a minimum annual base salary in the amount of $287,000 (the "Annual
Base Salary") payable in accordance with the Trust's regular payroll practices.
Executive's Annual Base Salary shall be reviewed annually in accordance with the
policy of the Trust from time to time and may be subject to upward adjustment
based upon, among other things, Executive's performance, as determined in the
sole discretion of the Compensation Committee of the Board (the "Compensation
Committee"). In no event shall Executive's Annual Base Salary in effect at a
particular time be reduced without his prior written consent.
(b) Incentive Compensation/Bonuses. Following the end of each
calendar year during the Employment Period commencing with the calendar ending
December 31, 1999 (each such calendar year being referred to herein as an
"Incentive Bonus Period"), Executive shall be considered for an incentive bonus
(the "Cash Incentive Bonus") based upon Executive's performance and the
financial and operating results of the Trust for such Incentive Bonus Period,
which bonus shall be payable in such amount and at such time as the Compensation
Committee shall determine, it being understood, however, that the Compensation
Committee shall be guided by, and make commercially reasonable efforts to use,
the following formula in determining the amount, if any, of such Cash Incentive
Bonus:
(i) 5% of the Executive's Annual Base Salary for each 1%
increase (or portion of each 1% increase if increase
is in excess of 1%) in funds from operations ("FFO")
per share of beneficial interest, par value $0.01 per
share, of the Trust (the "Common Shares") during the
Incentive Bonus Period (the "Comparative FFO") over
the FFO per Common Share for the calendar year
immediately preceding such Incentive Bonus Period
(the "Base FFO", except that for purposes of
determining the amount of the Cash Incentive Bonus
for the Incentive Bonus Period ending December 31,
1999, the Base FFO shall be the FFO for the fourth
quarter of calendar year 1998, annualized ) up to a
10% increase in the Comparative FFO over the Base
FFO, and, thereafter,
(ii) 10% of the Executive's Annual Base Salary for each
additional 1% increase (or portion of each 1%
increase if such increase is in excess of 1%) in the
Comparative FFO over the Base FFO up to a maximum
incentive compensation equal to 100% of the
Executive's Annual Base Salary.
Executive shall also be eligible, from time to time during the Employment
Period, to receive such bonuses and options to purchase Common Shares as the
Board, the Share Option Plan Committee or the Compensation Committee, as the
case may be, shall approve, in its sole discretion, including, without
limitation, options and bonuses contingent upon Executive's performance and the
achievement of specified financial and operating objectives for FFO per Common
Share. Any such options shall be issued at the then fair market value of the
Common Shares and on such other terms as the Compensation Committee shall
determine.
(c) Taxes and withholding. The Trust shall have the right to
deduct and withhold from all compensation all social security and other federal,
state and local taxes and charges which currently are or which hereafter may be
required by law to be so deducted and withheld.
(d) Additional Benefits. In addition to the compensation
specified above and other benefits provided pursuant to this Paragraph 4,
Executive shall be entitled to the following benefits:
(i) participation in the Option Plan, the Trust 401(k)
Savings and Retirement Plan (subject to statutory
rules and maximum contributions and
non-discrimination requirements applicable to 401(k)
plans) and such other benefit plans and programs,
including but not limited to restricted stock,
phantom stock and/or unit awards, loan programs and
any other incentive compensation plans or programs
(whether or not employee benefit plans or programs) ,
as maintained by the Trust from time to time and made
generally available to executives of the Trust with
such participation to be consistent with reasonable
Trust guidelines;
(ii) participation in any health insurance, disability
insurance, paid vacation, group life insurance or
other welfare benefit program made generally
available to executives of the Trust;
(iii) reimbursement for reasonable business expenses
incurred by Executive in furtherance of the interests
of the Trust;
(iv) an annual car allowance of $12,000 plus insurance
costs;
(v) as further consideration for Executive agreeing to
serve as an officer and entering into this Agreement
upon the terms set forth herein, including, without
limitation, the terms relating. to non-competition
set forth in Paragraph 13 below, the Trust is issuing
to Executive on the date hereof options to purchase
an aggregate of 1,000,000 Common Shares at a purchase
price equal to $7.50 per Common Share ("Options") .
Executive's Options shall be evidenced by the Option
Agreement dated ________ __, 1998 which shall
include, but not be limited to, the following
provision: vesting over a three year period with one
third (1/3) of the Options vesting on each of the
first, second and third anniversaries of the closing
date of the RDC Acquisition, to wit, August 12, 1998.
5. Termination of Employment and Change in Control.
(a) Executive's employment hereunder may be terminated during
the Employment Period under the following circumstances:
(i) Cause. The Trust shall have the right to terminate
Executive's employment for Cause upon Executive's:
(A) willful and continued failure to use best efforts
to substantially perform his duties hereunder (other
than any such failure resulting from Executive's
incapacity due to physical or mental illness) which
failure continues for a period of thirty (30) days
after written demand for substantial performance is
delivered by the Trust specifically identifying the
manner in which the Trust believes Executive has not
substantially performed his duties; (B) willful
misconduct and/or willful violation of Paragraph 11
hereof, which is materially economically injurious to
the Trust and the Partnership taken as a whole; (C)
the willful violation of the provisions of Paragraph
13 hereof; or (D) conviction of, or plea of guilty to
a felony. For purposes of this subparagraph 5(a), no
act, or failure to act, on Executive's part shall be
considered "willful" unless done, or omitted to be
done, by him (i) not in good faith and (ii) without
reasonable belief that his action or omission was in
furtherance of the interests of the Trust.
(ii) Death. Executive's employment hereunder shall
terminate upon his death.
(iii) Disability. The Trust shall have the right to
terminate Executive's employment due to "Disability"
in the event that there is a determination by the
Trust, upon the advice of an independent qualified
physician, reasonably acceptable to Executive, that
Executive has become physically or mentally incapable
of performing his duties under this Agreement and
such disability has disabled Executive for a
cumulative period of one hundred eighty (180) days
within a twelve (12) month period.
(iv) Good Reason. Executive shall have the right to
terminate his employment for "Good Reason": (A) upon
the occurrence of any material breach of this
Agreement by the Trust which shall include but not be
limited to: an assignment to Executive of duties
materially and adversely inconsistent with
Executive's status as CEO or a member of the Board or
a material or adverse alteration in the nature of or
diminution in Executive's duties and/or
responsibilities, reporting obligations, titles or
authority; (B) upon a reduction in Executive's Annual
Base Salary or a material reduction in other benefits
(except for bonuses or similar discretionary
payments) as in effect at the time in question, a
failure to pay such amounts when due or any other
failure by the Trust to comply with Paragraph 4
hereof which is not cured by the Trust within ten
(10) days written notice of such default by the
Executive; (C)on or within three (3) months following
a Change in Control (as hereinafter defined) in
accordance with the provisions set forth in
subparagraph 5(a)(vii) hereof; (D) any purported
termination of Executive's employment for Cause which
is not effected pursuant to the procedures of
sub-paragraph 5(a)(1) (and for purposes of this
Agreement, in the event of such failure to comply, no
such purported termination shall be effective); (E)
upon the relocation of the Trust's principal
executive offices or Executive's own office location
to a location more than thirty (30) miles away from
New York, New York and Port Washington, New York
without Executive's consent; or (F) failure to be
appointed or reappointed as a member of the Board.
(v) Without Cause The Trust shall have the right to
terminate the Executive's employment hereunder
without Cause subject to the terms and conditions of
this Agreement.
(vi) Without Good Reason. The Executive shall have the
right to terminate his employment hereunder without
Good Reason subject to the terms and conditions of
this Agreement.
(vii) Change in Control. Executive shall have the right to
terminate his employment hereunder on or within three
(3) months following a Change in Control. Such
termination shall be deemed a termination for Good
Reason hereunder. For purposes of this Agreement
"Change in Control" shall mean that any of the
following events has occurred: (A) any "person" or
"group" of persons, as such terms are used in
Sections 13 and 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than any
employee benefit plan sponsored by the Trust, becomes
the "beneficial owner", as such term is used in
Section 13 of the Exchange Act (irrespective of any
vesting or waiting periods) of (i) Common Shares or
any class of stock convertible into Common Shares
and/or (ii) Common OP Units or preferred units or any
other class of units convertible into Common OP
Units, in an amount equal to thirty (30%) percent or
more of the sum total of the Common Shares and the
Common OP Units (treating all classes of outstanding
Common Shares, units or other securities convertible
into Common Shares as if they were converted into
Common Shares or Common OP Units, as the case may be,
and then treating Common Shares and Common OP Units
as if they were a single class) issued and
outstanding immediately prior to such acquisition as
if they were a single class and disregarding any
equity raise in connection with the financing of such
transaction; (B) the dissolution or liquidation of
the Trust or the consummation of any merger or
consolidation of the Trust or any sale or other
disposition of all or substantially all of its
assets, if the shareholders of the Trust and
unitholders of the Partnership taken as a whole and
considered as one class immediately before such
transaction own, immediately after consummation of
such transaction, equity securities and partnership
units possessing less than fifty (50%) percent of the
surviving or acquiring Trust and partnership taken as
a whole; or (C) a turnover, during any two (2) year
period, of the majority of the members of the Board,
without the consent of the remaining members of the
Board as to the appointment of the new Board members.
(b) Notice of Termination Any termination of Executive's
employment by the Trust or any such termination by Executive (other than on
account of death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated. In the event of the termination of
Executive's employment on account of death, written Notice of Termination shall
be deemed to have been provided on the date of death.
6. Compensation Upon Termination of Employment By the Trust for Cause
or By Executive without Good Reason.
In the event the Trust terminates Executive's employment for Cause or
pursuant to a Six Month Notice of Non-Renewal given and made effective in
accordance with subparagraph 2(a) hereof, or Executive terminates his
employment without Good Reason, the Trust shall pay Executive any unpaid Annual
Base Salary at the rate then in effect accrued through and including the date
of termination ("Unpaid Accrued Salary"). In addition, in such event, Executive
shall be entitled to exercise any options which, as of the date of termination,
have vested and are exercisable in accordance with the terms of the applicable
option grant agreement or plan.
Except for any rights which Executive may have to Unpaid Accrued Salary
through and including the date of termination, and vested options, the Trust
shall have no further obligations hereunder following such termination. The
aforesaid amounts shall be payable in full immediately upon such termination.
7. Compensation Upon Termination of Employment Upon Death or
Disability.
In the event of termination of Executive's employment as a result of
either Executive's death or Disability, the Trust shall pay to Executive, his
estate or his personal representative the following:
(i) any Unpaid Accrued Salary through and including the date of
termination; plus
(ii) an amount computed at an annualized rate equal to the Executive's
Annual Base Salary at the rate then in effect pro-rated for the period
commencing on the day following the date of termination and ending on the later
of (A) one year from the date of termination or (B) the final day of the
Unexpired Employment Period (the "Severance Salary"); plus
(iii) an additional amount computed at an annualized rate equal to the
average of the Cash Incentive Bonuses awarded to the Executive for each of the
last two (2) calendar years immediately preceding the year in which the
Executive's employment is terminated, pro-rated for the period beginning on the
first day of the calendar year in which the Executive is terminated and ending
on the date of termination ("Unpaid Accrued Bonus"); plus
(iv) a further amount computed at an annualized rate equal to the
average of the Cash Incentive Bonuses awarded to the Executive for each of the
last two (2) calendar years immediately preceding the year in which the
Executive's employment is terminated, pro-rated for the period commencing on
the day following the date of termination and ending on the later of (A) one
year from the date of termination or (B) the final day of the Unexpired
Employment Period ("Severance Bonus"); plus
(v) reimbursement of expenses incurred prior to date of termination
("Expense Reimbursement").
The aforesaid amounts shall be payable in cash without discount for early
payment, at the option of Executive, his estate or his personal representative,
either in full immediately upon such termination or monthly over the Unexpired
Employment Period (the "Payment Election"). Throughout the Employment Period,
the Trust shall maintain insurance which shall insure, and be payable to the
Trust upon, the Executive's death or Disability in amounts sufficient to pay the
Trust's obligation to satisfy the amounts set forth above in clauses (i) through
(v) of this Paragraph 7. In the event of termination of employment due to
Disability, Executive shall also receive continuation of health coverage through
the end of the Unexpired Employment Period on the same basis as health coverage
is provided by the Trust for active employees and as may be amended from time to
time ("Medical Continuation").
In addition, all (A) incentive compensation payments or programs of any
nature whether stock based or otherwise that are subject to a vesting schedule
including without limitation restricted stock, phantom stock, units and any
loan forgiveness arrangements granted to Executive ("Incentive Compensation")
shall immediately vest as of the date of such termination ("Vested Incentive
Compensation") and (B) options granted to Executive shall immediately vest as
of the date of such termination (the "Vested Options") and Executive shall be
entitled at the option of Executive, his estate or his personal representative,
within one (1) year of the date of such termination, to exercise any options
which have vested (including, without limitation, by acceleration in accordance
with the terms of this Agreement, the applicable option grant agreement or
plan) and are exercisable in accordance with the terms of the applicable option
grant agreement or plan and/or any other methods or procedures for exercise
applicable to optionees or to require the Trust (upon written notice delivered
within one hundred eighty (180) days following the date of Executive's
termination) to repurchase all or any portion of Executive's vested options to
purchase shares of Common Shares at a price equal to the difference between the
Repurchase Fair Market Value (as hereinafter defined) of the Common Shares for
which the options to be repurchased are exercisable and the exercise price of
such options as of the date of Executive's termination of employment (the
"Vested Option Exercise Election"). In the event of a conflict between any
option grant agreement or plan and this Agreement, the terms of this Agreement
shall control.
Except for any rights which Executive may have to all of the above
including Unpaid Accrued Salary and Bonus, Severance Salary and Bonus, , Vested
Incentive Compensation, Vested Options, Expense Reimbursement, and in the event
of a termination of employment due to Disability, Medical Continuation, the
Trust shall have no further obligations hereunder following such termination.
For purposes of this Agreement, "Repurchase Fair Market Value" shall
mean the average of the closing price on the New York Stock Exchange (or such
other exchange on which the Common Shares are primarily traded) of the Common
Shares on each of the trading days within the thirty (30) days immediately
preceding the date of termination of Executive's employment.
8. Compensation Upon Termination of Employment By the Trust Without
Cause or By Executive for Good Reason.
In the event the Trust terminates Executive's employment for any reason
other than Cause or pursuant to a Six Month Notice of Non-Renewal given and
made effective in accordance with subparagraph 2(a) hereof, or Executive
terminates his employment for Good Reason, the Trust shall pay to Executive and
Executive shall be entitled to receive the sum total of (A) Unpaid Accrued
Salary and Bonus and (B) Severance Salary and Bonus, each determined in
accordance with Paragraph 7 of this Agreement. The aforesaid amounts shall be
payable in cash without discount for early payment, at the option of Executive,
either in full immediately upon such termination or monthly over the Unexpired
Employment Period.
In addition, the Executive shall be entitled to receive Vested
Incentive Compensation, Vested Options exercisable pursuant to the Vested
Option Exercise Election, Medical Continuation for the Unexpired Employment
Period, and Expense Reimbursement. Executive understands that any options
exercised more than ninety (90) days following the date of his termination of
employment which were granted as incentive stock options shall automatically be
converted into non-qualified options.
Except for Unpaid Accrued Salary and Bonus, Severance Salary and Bonus,
any rights which Executive may have to Vested Incentive Compensation, Vested
Options, Medical Continuation and Expense Reimbursement and the Excess Tax
Gross Up (as defined below in sub-paragraph 9(d)), the Trust shall have no
further obligations hereunder following such termination. The parties both
agree that the agreement to make these payments was consideration and an
inducement to obtain Executive's consent to enter into this Agreement. The
payments are not a penalty and neither party will claim them to be a penalty.
Rather, the payments represent a fair approximation of reasonable amounts due
to Executive for the Employment Period.
9. Change in Control.
(a) Options. Any Incentive Compensation and options granted to
Executive that have not vested as of the date of a Change in Control shall
immediately vest upon the date of the Change in Control. Neither the occurrence
of a Change in Control, nor the vesting in any options as a result thereof shall
require Executive to exercise any options. In the event of a conflict between
any Incentive Compensation grant agreement or program or any option grant
agreement or plan and this Agreement, the terms of this Agreement shall control.
(b) Upon Termination. In the event Executive terminates his
employment on or following a Change in Control as set forth in sub-paragraph
5(a)(vii), the Trust shall pay to Executive, and Executive shall be entitled to,
all the payments and rights Executive would have had if Executive had terminated
his employment with Good Reason as set forth in Paragraph 8. The aforesaid
amounts shall be payable in accordance with Executive's Payment Election.
Except for Unpaid Accrued Salary and Bonus, Severance Salary and Bonus,
any rights which Executive may have to Vested Incentive Compensation Vested
Options (including, without limitation, by acceleration in accordance with
sub-paragraph 9 (a)), Medical Continuation, Expense Reimbursement and the Excise
Tax Gross Up (as defined below in sub-paragraph 9(d))the Trust shall have no
further obligations hereunder following such termination.
(c) Excise Tax Gross Up. In addition, if it is determined by
the Trust's tax preparer that as a result of any payment in the nature of
compensation made by the Trust to (or for the benefit of) Executive pursuant to
this Agreement or otherwise, an excise tax may be imposed on Executive pursuant
to Section 4999 of the Code (or any successor provisions) , the Trust shall pay
Executive in cash an amount equal to "X" determined under the following formula:
(the "Excise Tax Gross Up")
E x P
X = __________________________________
1 - [(Fix (1-SLI) + E+M]
where
E = the rate at which the excise tax is assessed under
Section 4999 of the Code (or any successor
(provisions)
P = the amount with respect to which such excise tax
is assessed, determined without regard to the
Excise Tax Gross Up;
FI = the highest effective marginal rate of income tax
applicable to Executive under the Code for the
taxable year in question (taking into account any
phase-out or loss of deductions, personal exemptions
or other similar adjustments); SLI = the sum of the
highest effective marginal rates of income tax
applicable to Executive under all applicable state
and local laws for the taxable year in question
(taking into account any phase- out or loss of
deductions, personal exemptions and other similar
adjustments); and
M = the highest marginal rate of Medicare tax
applicable to Executive under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under Section 4999 of the Code (or any successor
provisions) may be assessed, the payment determined under this sub-paragraph
9(d) shall be paid to Executive at the time of the Change in Control but prior
to the consummation of the transaction with any successor. It is the intention
of the parties that the Trust provide Executive with a full tax gross-up under
the provisions of this Paragraph, so that on a net after-tax basis, the result
to Executive shall be the same as if the excise tax under Section 4999 of the
Code (or any successor provisions) had not been imposed. The Excise Tax Gross Up
may be adjusted if alternative minimum tax rules are applicable to Executive.
10. Mitigation/Effect on Employee Benefit Plans and Programs.
(a) Mitigation. Executive shall not be required to mitigate
amounts payable under this Agreement by seeking other employment or otherwise,
and there shall be no offset against amounts due Executive under this Agreement
on account of subsequent employment. Amounts owed to Executive under this
Agreement shall not be offset by any claims the Trust may have against Executive
and such payment shall not be affected by any other circumstances, including,
without limitation, any counterclaim, recoupment, defense, or other right which
the Trust may have against Executive or others.
(b) Effect on Employee Benefit Programs. The termination of
Executive's employment hereunder, whether by the Trust or Executive, shall have
no effect on the rights and obligations of the parties hereto under the Trust's
(i) welfare benefit plans including, without limitation, Medical Continuation as
provided for herein and health coverage thereafter but only to the extent
required by law, and on the same basis applicable to other employees and (ii)
401(k)Plan but only to the extent required by law and pursuant to the terms of
the 401(k)Plan.
11. Confidential Information.
(a) Executive understands and acknowledges that during his
employment with the Trust, he will be exposed to Confidential Information (as
defined below), all of which is proprietary and which will rightfully belong to
the Trust. Executive shall hold in a fiduciary capacity for the benefit of the
Trust such Confidential Information obtained by Executive during his employment
with the Trust and shall not, directly or indirectly, at any time, either during
or after his employment with the Trust, without the Trust's prior written
consent, use any of such Confidential Information or disclose any of such
Confidential Information to any individual or entity other than the Trust or its
employees, attorneys, accountants, financial advisors, consultants, or
investment bankers except as required in the performance of his duties for the
Trust or as otherwise required by law. Executive shall take all reasonable steps
to safeguard such Confidential Information and to protect such Confidential
Information against disclosure, misuse, loss or theft.
(b) The term "Confidential Information" shall mean any
information not generally known in the relevant trade or industry or otherwise
not generally available to the public, which was obtained from the Trust or its
predecessors or which was learned, discovered, developed, conceived, originated
or prepared during or as a result of the performance of any services by
Executive on behalf of the Trust or its predecessors. For purposes of this
Paragraph 11, the Trust shall be deemed to include any entity which is
controlled, directly or indirectly, by the Trust and any entity of which a
majority of the economic interest is owned, directly or indirectly, by the
Trust.
12. Return of Documents.
Except for such items, which are of a personal nature to Executive
(e.g., daily business planner), all writings, records, and other documents and
things containing any Confidential Information shall be the exclusive property
of the Trust, shall not be copied, summarized, extracted from, or removed from
the premises of the Trust, except in pursuit of the business of the Trust and at
the direction of the Trust, and shall be delivered to the Trust, without
retaining any copies, upon the termination of Executive's employment or at any
time as requested by the Trust.
13. Non-compete.
(a) Executive agrees that without the prior written consent of
a majority of the disinterested trustees of the Trust, obtained in accordance
with the terms and procedures of the Declaration of Trust and Bylaws of the
Trust and the Agreement of Limited Partnership of the Partnership and in
accordance with applicable law, and except as provided in subparagraph 13 (b),
Executive shall not at any time during the Noncompetition Period (as hereinafter
defined) engage in any way, directly or indirectly, in the Competitive Real
Estate Business (as hereinafter defined) , except in his capacity as an
employee, trustee or director, officer or shareholder of the Trust or the
Partnership. For purposes of this Paragraph 13, the term Competitive Real Estate
Business shall mean the acquisition, ownership, development, operation,
management or leasing of shopping centers and residential multi-dwelling
properties within the continental United States. The "Noncompetition Period"
shall be the period commencing on August 12, 1998 and ending on the later to
occur of (i) the date on which Executive is no longer an officer or trustee of
the Company or the Partnership; and (ii) the date Executive beneficially owns
less than ten percent (10%) of the Trust's Common Shares, calculated in
accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended, or any successor rule or regulation thereof.
(b) Nothing contained in this Paragraph 13 shall preclude
Executive from:
(i) acquiring, whether by gift or otherwise, any
property in the Competitive Real Estate Business or
any interest therein from another member of
Executive's family or from any entity controlled
thereby, provided, that if the acquisition of such
property or interest would violate the foregoing
limitations of this Paragraph 13, Executive shall
offer to sell such property or interest to the
Trust at its fair market value (to be mutually
agreed upon by the Trust, as approved by the
disinterested trustees, and Executive); or
(ii) engaging in business activities in the Competitive
Real Estate Business, or otherwise, of a passive
nature (i.e., with no participation in a capacity
as a general partner, or as a control person of a
general partner, or the functional equivalent
thereof); or
(iii) continuing to engage in those activities in which
Executive currently is engaged with respect to the
assets described in Schedule A attached hereto.
14. Remedies.
(a) The parties hereto agree that the Trust would suffer
irreparable harm from a breach by Executive of any of the covenants or
agreements contained in Paragraph 11, 12 or 13 of this Agreement. Therefore, in
the event of the actual or threatened breach by Executive of any of the
provisions of Paragraph 11, 12 or 13 of this Agreement, the Trust may, in
addition and supplementary to other rights and remedies existing in its favor,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violation of the provisions thereof.
(b) If the period of time, the area specified or the scope of
activity restricted in Paragraph 13 above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or the
scope of restricted activity shall be modified, or any or all of the foregoing
so that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable.
15. Indemnification/Legal Fees.
(a) Indemnification. In the event the Executive is made party
or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
Executive's employment with or serving as an officer or trustee of the Trust,
whether or not the basis of such Proceeding is alleged action in an official
capacity, the Trust shall indemnify, hold harmless and defend Executive to the
fullest extent authorized by Maryland law, as the same exists and may hereafter
be amended, against any and all claims, demands, suits, judgments, assessments
and settlements including all expenses incurred or suffered by Executive in
connection therewith (including, without limitation, all legal fees incurred
using counsel reasonably acceptable to Executive) and such indemnification shall
continue as to Executive even after Executive is no longer employed by the Trust
and shall inure to the benefit of his heirs, executors, and administrators.
Expenses incurred by Executive in connection with any Proceeding shall be paid
by the Trust in advance upon request of Executive that the Trust pay such
expenses; but only in the event that Executive shall have delivered in writing
to the Trust an undertaking to reimburse the Trust for expenses with respect to
which Executive is not entitled to indemnification. The provisions of this
Paragraph shall remain in effect after this Agreement is terminated irrespective
of the reasons for termination. The indemnification provisions of this Paragraph
shall not supersede or reduce any indemnification provided to Executive under
any separate agreement, or the by-laws of the Trust since it is intended that
this Agreement shall expand and extend the Executive's rights to receive
indemnity.
(b) Legal Fees. If any contest or dispute shall arise between
the Trust and Executive regarding or as a result of any provision of this
Agreement, the Trust shall reimburse Executive for all legal fees and expenses
reasonably incurred by Executive in connection with such contest or dispute, but
only if Executive is successful in respect of substantially all of Executive's
claims pursued or defended in connection with such contest or dispute. Such
reimbursement shall be made as soon as practicable following the resolution of
such contest or dispute (whether or not appealed).
16. Successors and Assigns.
(a) The Trust shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Trust, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Trust would be required to perform it if no such succession had taken place.
Failure of the Trust to obtain any such agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Trust in the same amount and on the same
terms as he would be entitled to hereunder if Executive terminated his
employment hereunder within three (3) months of a Change in Control as set
forth in Paragraph 9, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the
date of termination. In the event of such a breach of this Agreement, the
Notice of Termination shall specify such date as the date of termination. As
used in this Agreement, "Trust" shall mean the Trust as hereinbefore defined
and any successor to all or substantially all of its business and/or its
assets as aforesaid which executes and delivers the agreement provided for in
this Paragraph 16 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law. Any cash payments owed to
Executive pursuant to this Paragraph 16 shall be paid to Executive in a single
sum without discount for early payment immediately prior to the consummation
of the transaction with such successor. Nothing in this Paragraph 16(a) shall
be construed to interfere with the Trust's right to implement or pursue such
succession.
(b) This Agreement and all rights of Executive hereunder may
be transferred only by will or the laws of descent and distribution. Upon
Executive's death, this Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's beneficiary or
beneficiaries, personal or legal representatives, or estate, to the extent any
such person succeeds to Executive's interests under this Agreement. Executive
shall be entitled to select and change a beneficiary or beneficiaries to receive
any benefit or compensation payable hereunder following Executive's death by
giving Trust written notice thereof. If Executive should die following the date
of termination while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to such person or persons
so appointed in writing by Executive, including, without limitation, under any
applicable plan, or otherwise to his legal representatives or estate.
17. Timing of and No Duplication of Payments.
All payments payable to Executive pursuant to this Agreement shall be
paid as soon as practicable after such amounts have become fully vested and
determinable. In addition, Executive shall not be entitled to receive duplicate
payments under any of the provisions of this Agreement.
18. Modification or Waiver.
No amendment, modification, waiver, termination or cancellation of this
Agreement shall be binding or effective for any purpose unless it is made in a
writing signed by the party against whom enforcement of such amendment,
modification, waiver, termination or cancellation is sought. No course of
dealing between or among the parties to this Agreement shall be deemed to affect
or to modify, amend or discharge any provision or term of this Agreement. No
delay on the part of the Trust or Executive in the exercise of any of their
respective rights or remedies shall operate as a waiver thereof, and no single
or partial exercise by the Trust or Executive of any such right or remedy shall
preclude other or further exercise thereof. A waiver of right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy on any other occasion.
The respective rights and obligations of the parties hereunder shall
survive the Executive's termination of employment and termination of this
Agreement to the extent necessary for the intended preservation of such rights
and obligations.
19. Notices.
All notices or other communications required or permitted hereunder
shall be made in writing and shall be deemed to have been duly given if
delivered by hand or delivered by a recognized delivery service or mailed,
postage prepaid, by express, certified or registered mail, return receipt
requested, and addressed to the Trust at the address set forth above or
Executive at his address as set forth in the Trust records (or to such other
address as shall have been previously provided in accordance with this Paragraph
19).
20. Governing Law.
This agreement will be governed by and construed in accordance with the
laws of the State of [New York] except as to Paragraph 15(a), without regard to
principles of conflicts of laws thereunder.
21. Severability.
Whenever possible, each provision and term of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision or term of this Agreement shall be held to be prohibited by
or invalid under such applicable law, then, subject to the provisions of
sub-paragraph 13(b) above, such provision or term shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or affecting
in any manner whatsoever the remainder of such provisions or term or the
remaining provisions or terms of this Agreement.
22. Legal Representation.
Each of the Trust and Executive have been represented by counsel with
respect to this Agreement.
23. Counterparts.
This Agreement may be executed in separate counterparts, each of which
is deemed to be an original and both of which taken together shall constitute
one and the same agreement.
24. Headings.
The headings of the Paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof and shall
not affect the construction or interpretation of this Agreement.
25. Entire Agreement.
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all other prior agreements
and undertakings, both written and oral, among the parties with respect to the
subject matter hereof.
26. Survival of Agreements.
The covenants made in Paragraphs 5 through 15 and 21 each shall survive
the termination of this Agreement.
27. Prior Agreements.
Executive represents to the Trust and the Partnership that (a) there
are no restrictions, agreements or understandings whatsoever to which Executive
is a party which would prevent or make unlawful his execution of this Agreement,
and (b) his execution of this Agreement shall not constitute a breach of any
contract, agreement or understanding, oral or written, to which he is a party or
by which he is bound.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ACADIA REALTY TRUST
By: /s/ Robert Masters
-------------------------------
Name: Robert Masters
Title: Senior Vice President
/s/ Ross Dworman
----------------------------
Ross Dworman
SCHEDULE A
Properties in which Executive has an interest as of the date of this Agreement.
EMPLOYMENT AGREEMENT
FOR
KENNETH BERNSTEIN
TABLE OF CONTENTS
Page
1 Employment........................................................ 1
2 Employment Period................................................. 1
3 Services/Place of Employment...................................... 2
4 Compensation and Benefits ........................................ 3
5 Termination of Employment and Change in Control................... 5
6 Compensation Upon Termination of Employment By the
Trust for Cause or By Executive without Good Reason............... 8
7 Compensation Upon Termination of Employment Upon Death
or Disability..................................................... 8
8 Compensation Upon Termination of Employment By the
Trust Without Cause or By Executive for Good Reason.............. 10
9 Change in Control................................................ 11
10 Mitigation/Effect on Employee Benefit Plans and Programs......... 13
11 Confidential Information......................................... 13
12 Return of Documents.............................................. 14
13 Non-compete...................................................... 14
14 Remedies......................................................... 15
15 Indemnification/Legal Fees....................................... 15
16 Successors and Assigns........................................... 16
17 Timing of and No Duplication of Payments......................... 17
18 Modification or Waiver........................................... 17
19 Notices.......................................................... 18
20 Governing Law.................................................... 18
21 Severability..................................................... 18
22 Legal Representation............................................. 18
23 Counterparts..................................................... 18
24 Headings......................................................... 19
25 Entire Agreement................................................. 19
26 Survival of Agreements........................................... 19
27 Prior Agreements................................................. 19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of October 23, 1998, by and between Kenneth Bernstein, an individual residing
in the State of New York ("Executive"), and Acadia Realty Trust, a Maryland
real estate investment trust with offices at 805 Third Avenue, New York, New
York 10022 (the "Trust").
RECITALS
WHEREAS, Executive previously held the positions of Chief Operating
Officer of RD Capital, Inc. ("RDC") and, through such service, acquired special
and unique knowledge, abilities and expertise;
WHEREAS, in connection with RDC's acquisition of control of the Trust
(the "RDC Acquisition") the Trust desires to employ Executive as President and
to have Executive serve as a member of the Board of Trustees of the Trust (the
"Board"), and Executive desires to be employed by the Trust as President and
serve as a member of the Board pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. Employment.
The Trust hereby agrees to employ Executive, and Executive hereby
agrees to accept such employment during the period and upon the terms and
conditions set forth in this Agreement.
2. Employment Period.
(a) Except as otherwise provided in this Agreement to the
contrary, the terms and conditions of this Agreement shall be and remain in
effect during the period of employment (the "Employment Period") established
under this Paragraph 2. The Employment Period shall be for a minimum term
commencing on the date of this Agreement and ending on the third anniversary of
the date of this Agreement (the "Initial Employment Term"). Following the
expiration of the Initial Employment Term, the Employment Period shall
automatically be renewed and extended from day to day until either (i)
terminated by the Trust pursuant to a written notice given to the Executive in
accordance with Paragraph 19 at least six (6) months prior to the effective date
of such termination (the "Six Month Notice of Non-Renewal"), or (ii) the
Executive's employment otherwise terminates hereunder; it being understood,
however, that in no event shall any Six Month Notice of Non-Renewal be effective
prior to the final day of the Initial Employment Term.
(b) Notwithstanding anything contained herein to the contrary:
(i) Executive's employment with the Trust may be terminated by the Trust or
Executive during the Employment Period other than as provided in subparagraph
2(a) hereof, subject to the terms and conditions of this Agreement; and (ii)
nothing in this Agreement shall mandate or prohibit a continuation of
Executive's employment following the expiration of the Employment Period upon
such terms and conditions as the Board and Executive may mutually agree.
(c) If Executive's employment with the Trust is terminated,
for purposes of this Agreement the term "Unexpired Employment Period" shall
mean the period commencing on the date of such termination and ending, (i) in
the case of termination pursuant to a Six Month Notice of Non-Renewal given and
made effective in accordance with subparagraph 2(a) hereof, on the effective
date of termination set forth therein, or (ii) in all other circumstances of
termination, the later of (A) the final day of the Initial Employment Term or
(B) six (6) months after the giving of notice by the terminating party or the
occurrence of such other event that automatically results in termination.
3. Services/Place of Employment.
(a) Services. During the Employment Period, Executive shall
hold the position of President of the Trust and shall serve as a member of the
Board. Executive shall devote his best efforts and such business time, skill
and attention to the business of the Trust(other than absences due to vacation,
illness, disability or approved leave of absence) as in the reasonable business
judgment of the Executive is necessary to perform such duties as are
customarily performed by similar executive officers and as may be more
specifically enumerated from time to time by the Board or Executive Committee
of the Board; provided, however, that the foregoing is not intended to (x)
preclude Executive from (i) owning and managing personal investments, including
real estate investments, subject to the restrictions set forth in Paragraph 13
hereof or (ii) engaging in charitable activities and community affairs, or (y)
restrict or otherwise limit Executive from conducting real estate development,
acquisition or management activities with respect to those properties described
in Schedule A, attached hereto (the "Excluded Properties"), provided that the
performance of the activities referred to in the preceding clauses (x) and (y)
does not, in the reasonable business judgment of the Executive, prevent
Executive from devoting sufficient business time to the Trust to carry out
Executive's duties as Chairman and CEO.
(b) Place of Employment. The principal place of employment of
Executive shall be at the Trust's executive offices in New York, New York and
Port Washington, New York.
4. Compensation and Benefits.
(a) Salary. During the Employment Period, the Trust shall pay
Executive a minimum annual base salary in the amount of $250,000 (the "Annual
Base Salary") payable in accordance with the Trust's regular payroll practices.
Executive's Annual Base Salary shall be reviewed annually in accordance with the
policy of the Trust from time to time and may be subject to upward adjustment
based upon, among other things, Executive's performance, as determined in the
sole discretion of the Compensation Committee of the Board (the "Compensation
Committee"). In no event shall Executive's Annual Base Salary in effect at a
particular time be reduced without his prior written consent.
(b) Incentive Compensation/Bonuses. Following the end of each
calendar year during the Employment Period, commencing with the calendar ending
December 31, 1999 (each such calendar year being referred to herein as an
"Incentive Bonus Period") Executive shall be considered for an incentive bonus
(the "Cash Incentive Bonus") based upon Executive's performance and the
financial and operating results of the Trust for such Incentive Bonus Period,
which bonus shall be payable in such amount and at such time as the Compensation
Committee shall determine, it being understood, however, that the Compensation
Committee shall be guided by, and make commercially reasonable efforts to use,
the following formula in determining the amount, if any, of such Cash Incentive
Bonus:
(i) 5% of the Executive's Annual Base Salary for each 1%
increase (or portion of each 1% increase if increase
is in excess of 1%) in funds from operations ("FFO")
per share of beneficial interest, par value $0.01 per
share, of the Trust (the "Common Shares") during the
Incentive Bonus Period (the "Comparative FFO")over
the FFO per Common Share for the calendar year
immediately preceding such Incentive Bonus Period
(the "Base FFO", except that for purposes of
determining the amount of the Cash Incentive Bonus
for the Incentive Bonus Period ending December 31,
1999, the Base FFO shall be the FFO for the fourth
quarter of calendar year 1998, annualized), up to a
10% increase in FFO over the Base FFO, and,
thereafter,
(ii) 10% of the Executive's Annual Base Salary for each
additional 1% increase (or portion of each 1%
increase if such increase is in excess of 1%) in
the Comparative FFO over the Base FFO up to a
maximum incentive compensation equal to 100% of the
Executive's Annual Base Salary.
Executive shall also be eligible, from time to time during the Employment
Period, to receive such bonuses and options to purchase Common Shares as the
Board, the Share Option Plan Committee or the Compensation Committee, as the
case may be, shall approve, in its sole discretion, including, without
limitation, options and bonuses contingent upon Executive's performance and the
achievement of specified financial and operating objectives for FFO per Common
Share. Any such options shall be issued at the then fair market value of the
Common Shares and on such other terms as the Compensation Committee shall
determine.
(c) Taxes and withholding. The Trust shall have the right to
deduct and withhold from all compensation all social security and other federal,
state and local taxes and charges which currently are or which hereafter may be
required by law to be so deducted and withheld.
(d) Additional Benefits. In addition to the compensation
specified above and other benefits provided pursuant to this Paragraph 4,
Executive shall be entitled to the following benefits:
(i) participation in the Option Plan, the Trust 401(k)
Savings and Retirement Plan (subject to statutory
rules and maximum contributions and
non-discrimination requirements applicable to
401(k) plans) and such other benefit plans and
programs, including but not limited to restricted
stock, phantom stock and/or unit awards, loan
programs and any other incentive compensation plans
or programs (whether or not employee benefit plans
or programs) , as maintained by the Trust from time
to time and made generally available to executives
of the Trust with such participation to be
consistent with reasonable Trust guidelines;
(ii) participation in any health insurance, disability
insurance, paid vacation, group life insurance or
other welfare benefit program made generally
available to executives of the Trust;
(iii) reimbursement for reasonable business expenses
incurred by Executive in furtherance of the
interests of the Trust;
(iv) an annual car allowance of $12,000 plus insurance
costs;
(v) as further consideration for Executive agreeing to
serve as an officer and entering into this
Agreement upon the terms set forth herein,
including, without limitation, the terms relating.
to non-competition set forth in Paragraph 13 below,
the Trust is issuing to Executive on the date
hereof options to purchase an aggregate of 500,000
Common Shares at a purchase price equal to $7.50
per Common Share ("Options"). Executive's Options
shall be evidenced by the Option Agreement dated
________ __, 1998 which shall include, but not be
limited to, the following provision: vesting over a
three year period with one third (1/3) of the
Options vesting on each of the first, second and
third anniversaries of the closing date of the RDC
Acquisition, to wit, August 12, 1998.
5. Termination of Employment and Change in Control.
(a) Executive's employment hereunder may be terminated during
the Employment Period under the following circumstances:
(i) Cause. The Trust shall have the right to terminate
Executive's employment for Cause upon Executive's:
(A) willful and continued failure to use best
efforts to substantially perform his duties
hereunder (other than any such failure resulting
from Executive's incapacity due to physical or
mental illness) which failure continues for a
period of thirty (30) days after written demand for
substantial performance is delivered by the Trust
specifically identifying the manner in which the
Trust believes Executive has not substantially
performed his duties; (B) willful misconduct and/or
willful violation of Paragraph 11 hereof, which is
materially economically injurious to the Trust and
the Partnership taken as a whole; (C) the willful
violation of the provisions of Paragraph 13 hereof;
or (D) conviction of, or plea of guilty to a
felony. For purposes of this subparagraph 5(a), no
act, or failure to act, on Executive's part shall
be considered "willful" unless done, or omitted to
be done, by him (i) not in good faith and (ii)
without reasonable belief that his action or
omission was in furtherance of the interests of the
Trust.
(ii) Death. Executive's employment hereunder shall
terminate upon his death.
(iii) Disability. The Trust shall have the right to
terminate Executive's employment due to
"Disability" in the event that there is a
determination by the Trust, upon the advice of an
independent qualified physician, reasonably
acceptable to Executive, that Executive has become
physically or mentally incapable of performing his
duties under this Agreement and such disability has
disabled Executive for a cumulative period of one
hundred eighty (180) days within a twelve (12)
month period.
(iv) Good Reason. Executive shall have the right to
terminate his employment for "Good Reason": (A)
upon the ----------- occurrence of any material
breach of this Agreement by the Trust which shall
include but not be limited to: an assignment to
Executive of duties materially and adversely
inconsistent with Executive's status as President
or a member of the Board or a material or adverse
alteration in the nature of or diminution in
Executive's duties and/or responsibilities,
reporting obligations, titles or authority; (B)
upon a reduction in Executive's Annual Base Salary
or a material reduction in other benefits (except
for bonuses or similar discretionary payments) as
in effect at the time in question, a failure to pay
such amounts when due or any other failure by the
Trust to comply with Paragraph 4 hereof which is
not cured by the Trust within ten (10) days written
notice of such default by the Executive; (C)on or
within three (3) months following a Change in
Control (as hereinafter defined) in accordance with
the provisions set forth in subparagraph 5(a)(vii)
hereof; (D) any purported termination of
Executive's employment for Cause which is not
effected pursuant to the procedures of
sub-paragraph 5(a)(1) (and for purposes of this
Agreement, in the event of such failure to comply,
no such purported termination shall be effective);
(E) upon the relocation of the Trust's principal
executive offices or Executive's own office
location to a location more than thirty (30) miles
away from New York, New York and Port Washington,
New York without Executive's consent; or (F)
failure to be appointed or reappointed as a member
of the Board.
(v) Without Cause The Trust shall have the right to
terminate the Executive's employment hereunder
without Cause subject to the terms and conditions
of this Agreement.
(vi) Without Good Reason. The Executive shall have the
right to terminate his employment hereunder without
Good Reason subject to the terms and conditions of
this Agreement.
(vii) Change in Control. Executive shall have the right
to terminate his employment hereunder on or within
three (3) months following a Change in Control.
Such termination shall be deemed a termination for
Good Reason hereunder. For purposes of this
Agreement "Change in Control" shall mean that any
of the following events has occurred: (A) any
"person" or "group" of persons, as such terms are
used in Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), other than any employee benefit plan
sponsored by the Trust, becomes the "beneficial
owner", as such term is used in Section 13 of the
Exchange Act (irrespective of any vesting or
waiting periods) of (i) Common Shares or any class
of stock convertible into Common Shares and/or (ii)
Common OP Units or preferred units or any other
class of units convertible into Common OP Units, in
an amount equal to thirty (30%) percent or more of
the sum total of the Common Shares and the Common
OP Units (treating all classes of outstanding
Common Shares, units or other securities
convertible into Common Shares as if they were
converted into Common Shares or Common OP Units, as
the case may be, and then treating Common Shares
and Common OP Units as if they were a single class)
issued and outstanding immediately prior to such
acquisition as if they were a single class and
disregarding any equity raise in connection with
the financing of such transaction; (B) the
dissolution or liquidation of the Trust or the
consummation of any merger or consolidation of the
Trust or any sale or other disposition of all or
substantially all of its assets, if the
shareholders of the Trust and unitholders of the
Partnership taken as a whole and considered as one
class immediately before such transaction own,
immediately after consummation of such transaction,
equity securities and partnership units possessing
less than fifty (50%) percent of the surviving or
acquiring Trust and partnership taken as a whole;
or (C) a turnover, during any two (2) year period,
of the majority of the members of the Board,
without the consent of the remaining members of the
Board as to the appointment of the new Board
members. (b) Notice of Termination Any termination
of Executive's employment by the Trust or any such
termination by Executive (other than on account of
death) shall be communicated by written Notice of
Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific
termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for
termination of Executive's employment under the
provision so indicated. In the event of the
termination of Executive's employment on account of
death, written Notice of Termination shall be
deemed to have been provided on the date of death.
6. Compensation Upon Termination of Employment By the Trust for Cause
or By Executive without Good Reason.
In the event the Trust terminates Executive's employment for Cause or
pursuant to a Six Month Notice of Non-Renewal given and made effective in
accordance with subparagraph 2(a) hereof, or Executive terminates his
employment without Good Reason, the Trust shall pay Executive any unpaid Annual
Base Salary at the rate then in effect accrued through and including the date
of termination ("Unpaid Accrued Salary"). In addition, in such event, Executive
shall be entitled to exercise any options which, as of the date of termination,
have vested and are exercisable in accordance with the terms of the applicable
option grant agreement or plan.
Except for any rights which Executive may have to Unpaid Accrued Salary
through and including the date of termination, and vested options, the Trust
shall have no further obligations hereunder following such termination. The
aforesaid amounts shall be payable in full immediately upon such termination.
7. Compensation Upon Termination of Employment Upon Death or
Disability.
In the event of termination of Executive's employment as a result of
either Executive's death or Disability, the Trust shall pay to Executive, his
estate or his personal representative the following:
(i) any Unpaid Accrued Salary through and including the date of
termination; plus
(ii) an amount computed at an annualized rate equal to the Executive's
Annual Base Salary at the rate then in effect pro-rated for the period
commencing on the day following the date of termination and ending on the later
of (A) one year from the date of termination or (B) the final day of the
Unexpired Employment Period (the "Severance Salary "); plus
(iii) an additional amount computed at an annualized rate equal to the
average of the Cash Incentive Bonuses awarded to the Executive for each of the
last two (2) calendar years immediately preceding the year in which the
Executive's employment is terminated, pro-rated for the period beginning on the
first day of the calendar year in which the Executive is terminated and ending
on the date of termination ("Unpaid Accrued Bonus"); plus
(iv) a further amount computed at an annualized rate equal to the
average of the Cash Incentive Bonuses awarded to the Executive for each of the
last two (2) calendar years immediately preceding the year in which the
Executive's employment is terminated, pro-rated for the period commencing on
the day following the date of termination and ending on the later of (A) one
year from the date of termination or (B) the final day of the Unexpired
Employment Period ("Severance Bonus"); plus
(v) reimbursement of expenses incurred prior to date of termination
("Expense Reimbursement").
The aforesaid amounts shall be payable in cash without discount for early
payment, at the option of Executive, his estate or his personal representative,
either in full immediately upon such termination or monthly over the Unexpired
Employment Period (the "Payment Election"). Throughout the Employment Period,
the Trust shall maintain insurance which shall insure, and be payable to the
Trust upon, the Executive's death or Disability in amounts sufficient to pay the
Trust's obligation to satisfy the amounts set forth above in clauses (i) through
(v) of this Paragraph 7. In the event of termination of employment due to
Disability, Executive shall also receive continuation of health coverage through
the end of the Unexpired Employment Period on the same basis as health coverage
is provided by the Trust for active employees and as may be amended from time to
time ("Medical Continuation").
In addition, all (A) incentive compensation payments or programs of any
nature whether stock based or otherwise that are subject to a vesting schedule
including without limitation restricted stock, phantom stock, units and any
loan forgiveness arrangements granted to Executive ("Incentive Compensation")
shall immediately vest as of the date of such termination ("Vested Incentive
Compensation") and (B) options granted to Executive shall immediately vest as
of the date of such termination (the "Vested Options") and Executive shall be
entitled at the option of Executive, his estate or his personal representative,
within one (1) year of the date of such termination, to exercise any options
which have vested (including, without limitation, by acceleration in accordance
with the terms of this Agreement, the applicable option grant agreement or
plan) and are exercisable in accordance with the terms of the applicable option
grant agreement or plan and/or any other methods or procedures for exercise
applicable to optionees or to require the Trust (upon written notice delivered
within one hundred eighty (180) days following the date of Executive's
termination) to repurchase all or any portion of Executive's vested options to
purchase shares of Common Shares at a price equal to the difference between the
Repurchase Fair Market Value (as hereinafter defined) of the Common Shares for
which the options to be repurchased are exercisable and the exercise price of
such options as of the date of Executive's termination of employment (the
"Vested Option Exercise Election"). In the event of a conflict between any
option grant agreement or plan and this Agreement, the terms of this Agreement
shall control.
Except for any rights which Executive may have to all of the above
including Unpaid Accrued Salary and Bonus, Severance Salary and Bonus, , Vested
Incentive Compensation, Vested Options, Expense Reimbursement, and in the event
of a termination of employment due to Disability, Medical Continuation, the
Trust shall have no further obligations hereunder following such termination.
For purposes of this Agreement, "Repurchase Fair Market Value" shall
mean the average of the closing price on the New York Stock Exchange (or such
other exchange on which the Common Shares are primarily traded) of the Common
Shares on each of the trading days within the thirty (30) days immediately
preceding the date of termination of Executive's employment.
8. Compensation Upon Termination of Employment By the Trust Without
Cause or By Executive for Good Reason.
In the event the Trust terminates Executive's employment for any reason
other than Cause or pursuant to a Six Month Notice of Non-Renewal given and
made effective in accordance with subparagraph 2(a) hereof, or Executive
terminates his employment for Good Reason, the Trust shall pay to Executive and
Executive shall be entitled to receive the sum total of (A) Unpaid Accrued
Salary and Bonus and (B) Severance Salary and Bonus, each determined in
accordance with Paragraph 7 of the Agreement. The aforesaid amounts shall be
payable in cash without discount for early payment, at the option of Executive,
either in full immediately upon such termination or monthly over the Unexpired
Employment Period.
In addition, the Executive shall be entitled to receive Vested
Incentive Compensation, Vested Options exercisable pursuant to the Vested
Option Exercise Election, Medical Continuation for the Unexpired Employment
Period, and Expense Reimbursement. Executive understands that any options
exercised more than ninety (90) days following the date of his termination of
employment which were granted as incentive stock options shall automatically be
converted into non-qualified options.
Except for Unpaid Accrued Salary and Bonus, Severance Salary and Bonus,
any rights which Executive may have to Vested Incentive Compensation, Vested
Options, Medical Continuation and Expense Reimbursement and the Excess Tax
Gross Up (as defined below in sub-paragraph 9(d)), the Trust shall have no
further obligations hereunder following such termination. The parties both
agree that the agreement to make these payments was consideration and an
inducement to obtain Executive's consent to enter into this Agreement. The
payments are not a penalty and neither party will claim them to be a penalty.
Rather, the payments represent a fair approximation of reasonable amounts due
to Executive for the Employment Period.
9. Change in Control.
(a) Options. Any Incentive Compensation and options granted to
Executive that have not vested as of the date of a Change in Control shall
immediately vest upon the date of the Change in Control. Neither the occurrence
of a Change in Control, nor the vesting in any options as a result thereof shall
require Executive to exercise any options. In the event of a conflict between
any Incentive Compensation grant agreement or program or any option grant
agreement or plan and this Agreement, the terms of this Agreement shall control.
(b) Upon Termination. In the event Executive terminates his
employment on or following a Change in Control as set forth in sub-paragraph
5(a)(vii), the Trust shall pay to Executive, and Executive shall be entitled to,
all the payments and rights Executive would have had if Executive had terminated
his employment with Good Reason as set forth in Paragraph 8. The aforesaid
amounts shall be payable in accordance with Executive's Payment Election.
Except for Unpaid Accrued Salary and Bonus, Severance Salary and Bonus,
any rights which Executive may have to Vested Incentive Compensation Vested
Options (including, without limitation, by acceleration in accordance with
sub-paragraph 9 (a)), Medical Continuation, Expense Reimbursement and the Excise
Tax Gross Up (as defined below in sub-paragraph 9(d))the Trust shall have no
further obligations hereunder following such termination.
(c) Excise Tax Gross Up. In addition, if it is determined by
the Trust's tax preparer that as a result of any payment in the nature of
compensation made by the Trust to (or for the benefit of) Executive pursuant to
this Agreement or otherwise, an excise tax may be imposed on Executive pursuant
to Section 4999 of the Code (or any successor provisions) , the Trust shall pay
Executive in cash an amount equal to "X" determined under the following formula:
(the "Excise Tax Gross Up")
E x P
X = __________________________________
1 - [(Fix (1-SLI) + E+M]
where
E = the rate at which the excise tax is assessed under
Section 4999 of the Code (or any successor
(provisions)
P = the amount with respect to which such excise tax
is assessed, determined without regard to the
Excise Tax Gross Up;
FI = the highest effective marginal rate of income tax
applicable to Executive under the Code for the
taxable year in question (taking into account any
phase-out or loss of deductions, personal exemptions
or other similar adjustments); SLI = the sum of the
highest effective marginal rates of income tax
applicable to Executive under all applicable state
and local laws for the taxable year in question
(taking into account any phase- out or loss of
deductions, personal exemptions and other similar
adjustments); and
M = the highest marginal rate of Medicare tax
applicable to Executive under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under Section 4999 of the Code (or any successor
provisions) may be assessed, the payment determined under this sub-paragraph
9(d) shall be paid to Executive at the time of the Change in Control but prior
to the consummation of the transaction with any successor. It is the intention
of the parties that the Trust provide Executive with a full tax gross-up under
the provisions of this Paragraph, so that on a net after-tax basis, the result
to Executive shall be the same as if the excise tax under Section 4999 of the
Code (or any successor provisions) had not been imposed. The Excise Tax Gross Up
may be adjusted if alternative minimum tax rules are applicable to Executive.
10. Mitigation/Effect on Employee Benefit Plans and Programs.
(a) Mitigation. Executive shall not be required to mitigate
amounts payable under this Agreement by seeking other employment or otherwise,
and there shall be no offset against amounts due Executive under this Agreement
on account of subsequent employment. Amounts owed to Executive under this
Agreement shall not be offset by any claims the Trust may have against Executive
and such payment shall not be affected by any other circumstances, including,
without limitation, any counterclaim, recoupment, defense, or other right which
the Trust may have against Executive or others.
(b) Effect on Employee Benefit Programs. The termination of
Executive's employment hereunder, whether by the Trust or Executive, shall have
no effect on the rights and obligations of the parties hereto under the Trust's
(i) welfare benefit plans including, without limitation, Medical Continuation as
provided for herein and health coverage thereafter but only to the extent
required by law, and on the same basis applicable to other employees and (ii)
401(k)Plan but only to the extent required by law and pursuant to the terms of
the 401(k)Plan.
11. Confidential Information.
(a) Executive understands and acknowledges that during his
employment with the Trust, he will be exposed to Confidential Information (as
defined below), all of which is proprietary and which will rightfully belong to
the Trust. Executive shall hold in a fiduciary capacity for the benefit of the
Trust such Confidential Information obtained by Executive during his employment
with the Trust and shall not, directly or indirectly, at any time, either during
or after his employment with the Trust, without the Trust's prior written
consent, use any of such Confidential Information or disclose any of such
Confidential Information to any individual or entity other than the Trust or its
employees, attorneys, accountants, financial advisors, consultants, or
investment bankers except as required in the performance of his duties for the
Trust or as otherwise required by law. Executive shall take all reasonable steps
to safeguard such Confidential Information and to protect such Confidential
Information against disclosure, misuse, loss or theft.
(b) The term "Confidential Information" shall mean any
information not generally known in the relevant trade or industry or otherwise
not generally available to the public, which was obtained from the Trust or its
predecessors or which was learned, discovered, developed, conceived, originated
or prepared during or as a result of the performance of any services by
Executive on behalf of the Trust or its predecessors. For purposes of this
Paragraph 11, the Trust shall be deemed to include any entity which is
controlled, directly or indirectly, by the Trust and any entity of which a
majority of the economic interest is owned, directly or indirectly, by the
Trust.
12. Return of Documents.
Except for such items, which are of a personal nature to Executive
(e.g., daily business planner), all writings, records, and other documents and
things containing any Confidential Information shall be the exclusive property
of the Trust, shall not be copied, summarized, extracted from, or removed from
the premises of the Trust, except in pursuit of the business of the Trust and at
the direction of the Trust, and shall be delivered to the Trust, without
retaining any copies, upon the termination of Executive's employment or at any
time as requested by the Trust.
13. Non-compete.
(a) Executive agrees that without the prior written consent of
a majority of the disinterested trustees of the Trust, obtained in accordance
with the terms and procedures of the Declaration of Trust and Bylaws of the
Trust and the Agreement of Limited Partnership of the Partnership and in
accordance with applicable law, and except as provided in subparagraph 13 (b),
Executive shall not at any time during the Noncompetition Period (as hereinafter
defined) engage in any way, directly or indirectly, in the Competitive Real
Estate Business (as hereinafter defined) , except in his capacity as an
employee, trustee or director, officer or shareholder of the Trust or the
Partnership. For purposes of this Paragraph 13, the term Competitive Real Estate
Business shall mean the acquisition, ownership, development, operation,
management or leasing of shopping centers and residential multi-dwelling
properties within the continental United States. The "Noncompetition Period"
shall be the period commencing on August 12, 1998 and ending on the later to
occur of (i) the date on which Executive is no longer an officer or trustee of
the Company or the Partnership; and (ii) the date Executive beneficially owns
less than ten percent (10%) of the Trust's Common Shares, calculated in
accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended, or any successor rule or regulation thereof.
(b) Nothing contained in this Paragraph 13 shall preclude
Executive from:
(i) acquiring, whether by gift or otherwise, any
property in the Competitive Real Estate Business or
any interest therein from another member of
Executive's family or from any entity controlled
thereby, provided, that if the acquisition of such
property or interest would violate the foregoing
limitations of this Paragraph 13, Executive shall
offer to sell such property or interest to the
Trust at its fair market value (to be mutually
agreed upon by the Trust, as approved by the
disinterested trustees, and Executive); or
(ii) engaging in business activities in the Competitive
Real Estate Business, or otherwise, of a passive
nature (i.e., with no participation in a capacity
as a general partner, or as a control person of a
general partner, or the functional equivalent
thereof); or
(iii) continuing to engage in those activities in which
Executive currently is engaged with respect to the
assets described in Schedule A attached hereto.
14. Remedies.
(a) The parties hereto agree that the Trust would suffer
irreparable harm from a breach by Executive of any of the covenants or
agreements contained in Paragraph 11, 12 or 13 of this Agreement. Therefore, in
the event of the actual or threatened breach by Executive of any of the
provisions of Paragraph 11, 12 or 13 of this Agreement, the Trust may, in
addition and supplementary to other rights and remedies existing in its favor,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violation of the provisions thereof.
(b) If the period of time, the area specified or the scope of
activity restricted in Paragraph 13 above should be adjudged unreasonable in any
proceeding, then the period of time shall be reduced by such number of months or
the area shall be reduced by the elimination of such portion thereof or the
scope of restricted activity shall be modified, or any or all of the foregoing
so that such restrictions may be enforced in such area and for such time as is
adjudged to be reasonable.
15. Indemnification/Legal Fees.
(a) Indemnification. In the event the Executive is made party
or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
Executive's employment with or serving as an officer or trustee of the Trust,
whether or not the basis of such Proceeding is alleged action in an official
capacity, the Trust shall indemnify, hold harmless and defend Executive to the
fullest extent authorized by Maryland law, as the same exists and may hereafter
be amended, against any and all claims, demands, suits, judgments, assessments
and settlements including all expenses incurred or suffered by Executive in
connection therewith (including, without limitation, all legal fees incurred
using counsel reasonably acceptable to Executive) and such indemnification shall
continue as to Executive even after Executive is no longer employed by the Trust
and shall inure to the benefit of his heirs, executors, and administrators.
Expenses incurred by Executive in connection with any Proceeding shall be paid
by the Trust in advance upon request of Executive that the Trust pay such
expenses; but only in the event that Executive shall have delivered in writing
to the Trust an undertaking to reimburse the Trust for expenses with respect to
which Executive is not entitled to indemnification. The provisions of this
Paragraph shall remain in effect after this Agreement is terminated irrespective
of the reasons for termination. The indemnification provisions of this Paragraph
shall not supersede or reduce any indemnification provided to Executive under
any separate agreement, or the by-laws of the Trust since it is intended that
this Agreement shall expand and extend the Executive's rights to receive
indemnity.
(b) Legal Fees. If any contest or dispute shall arise between
the Trust and Executive regarding or as a result of any provision of this
Agreement, the Trust shall reimburse Executive for all legal fees and expenses
reasonably incurred by Executive in connection with such contest or dispute, but
only if Executive is successful in respect of substantially all of Executive's
claims pursued or defended in connection with such contest or dispute. Such
reimbursement shall be made as soon as practicable following the resolution of
such contest or dispute (whether or not appealed).
16. Successors and Assigns.
(a) The Trust shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Trust, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Trust would be required to perform it if no such succession had taken place.
Failure of the Trust to obtain any such agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Trust in the same amount and on the same
terms as he would be entitled to hereunder if Executive terminated his
employment hereunder within three (3) months of a Change in Control as set
forth in Paragraph 9, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the
date of termination. In the event of such a breach of this Agreement, the
Notice of Termination shall specify such date as the date of termination. As
used in this Agreement, "Trust" shall mean the Trust as hereinbefore defined
and any successor to all or substantially all of its business and/or its
assets as aforesaid which executes and delivers the agreement provided for in
this Paragraph 16 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law. Any cash payments owed to
Executive pursuant to this Paragraph 16 shall be paid to Executive in a single
sum without discount for early payment immediately prior to the consummation
of the transaction with such successor. Nothing in this Paragraph 16(a) shall
be construed to interfere with the Trust's right to implement or pursue such
succession.
(b) This Agreement and all rights of Executive hereunder may
be transferred only by will or the laws of descent and distribution. Upon
Executive's death, this Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's beneficiary or
beneficiaries, personal or legal representatives, or estate, to the extent any
such person succeeds to Executive's interests under this Agreement. Executive
shall be entitled to select and change a beneficiary or beneficiaries to receive
any benefit or compensation payable hereunder following Executive's death by
giving Trust written notice thereof. If Executive should die following the date
of termination while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to such person or persons
so appointed in writing by Executive, including, without limitation, under any
applicable plan, or otherwise to his legal representatives or estate.
17. Timing of and No Duplication of Payments.
All payments payable to Executive pursuant to this Agreement shall be
paid as soon as practicable after such amounts have become fully vested and
determinable. In addition, Executive shall not be entitled to receive duplicate
payments under any of the provisions of this Agreement.
18. Modification or Waiver.
No amendment, modification, waiver, termination or cancellation of this
Agreement shall be binding or effective for any purpose unless it is made in a
writing signed by the party against whom enforcement of such amendment,
modification, waiver, termination or cancellation is sought. No course of
dealing between or among the parties to this Agreement shall be deemed to affect
or to modify, amend or discharge any provision or term of this Agreement. No
delay on the part of the Trust or Executive in the exercise of any of their
respective rights or remedies shall operate as a waiver thereof, and no single
or partial exercise by the Trust or Executive of any such right or remedy shall
preclude other or further exercise thereof. A waiver of right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy on any other occasion.
The respective rights and obligations of the parties hereunder shall
survive the Executive's termination of employment and termination of this
Agreement to the extent necessary for the intended preservation of such rights
and obligations.
19. Notices.
All notices or other communications required or permitted hereunder
shall be made in writing and shall be deemed to have been duly given if
delivered by hand or delivered by a recognized delivery service or mailed,
postage prepaid, by express, certified or registered mail, return receipt
requested, and addressed to the Trust at the address set forth above or
Executive at his address as set forth in the Trust records (or to such other
address as shall have been previously provided in accordance with this Paragraph
19).
20. Governing Law.
This agreement will be governed by and construed in accordance with the
laws of the State of [New York] except as to Paragraph 15(a), without regard to
principles of conflicts of laws thereunder.
21. Severability.
Whenever possible, each provision and term of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision or term of this Agreement shall be held to be prohibited by
or invalid under such applicable law, then, subject to the provisions of
sub-paragraph 13(b) above, such provision or term shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or affecting
in any manner whatsoever the remainder of such provisions or term or the
remaining provisions or terms of this Agreement.
22. Legal Representation.
Each of the Trust and Executive have been represented by counsel with
respect to this Agreement.
23. Counterparts.
This Agreement may be executed in separate counterparts, each of which
is deemed to be an original and both of which taken together shall constitute
one and the same agreement.
24. Headings.
The headings of the Paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof and shall
not affect the construction or interpretation of this Agreement.
25. Entire Agreement.
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all other prior agreements
and undertakings, both written and oral, among the parties with respect to the
subject matter hereof.
26. Survival of Agreements.
The covenants made in Paragraphs 5 through 15 and 21 each shall survive
the termination of this Agreement.
27. Prior Agreements.
Executive represents to the Trust and the Partnership that (a) there
are no restrictions, agreements or understandings whatsoever to which Executive
is a party which would prevent or make unlawful his execution of this Agreement,
and (b) his execution of this Agreement shall not constitute a breach of any
contract, agreement or understanding, oral or written, to which he is a party or
by which he is bound.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ACADIA REALTY TRUST
By: /s/ Robert Masters
--------------------------------
Name: Robert Masters
Title: Senior Vice President
/s/ Kenneth Bernstein
--------------------------------
Kenneth Bernstein
SCHEDULE A
Properties in which Executive has an interest as of the date of this Agreement.
SUBSIDIARIES
239 Greenwich Associates, L.P.
Acadia Realty Limited Partnership
Acadia G.O. Limited Partnership
Acadia Merrillville Realty, L.P.
Acadia Property Holdings, LLC
Acadia Town Line, LLC
Blackman Fifty Realty Corp.
Blackman Fifty, L.P.
Greenbelt Realty Corp.
Mark Manahawkin Realty Corp.
Mark Manahawkin, L.P.
Mark 25th Street Realty Corp.
Mark 25th Street, L.P.
Mark Shillington Realty Corp.
Mark Shillington, L.P.
Mark Berlin Realty Corp.
Mark Berlin, L.P.
Mark Four Realty Corp.
Mark Four Realty, L.P.
Mark Kings Fairground Realty Inc.
Mark Kings Fairground, L.P.
Mark M.P.N.M. Realty Inc.
Mark M.P.N.M., L.P.
Mark Martintown Realty Inc.
Mark Martintown, L.P.
Mark New Smyrna Realty Inc.
Mark New Smyrna, L.P.
Mark Northwood Realty Inc.
Mark Northwood Associates, L.P.
Mark Park Plaza Realty Inc.
Mark Park Plaza, L.P.
Mark Plaza Fifty Realty Corp.
Mark Plaza Fifty, L.P.
Mark Shillington Realty Corp.
Mark Shillington, L.P.
SUBSIDIARIES, continued
Mark Three Realty Corp.
Mark Three Realty, L.P.
Mark Troy Realty Inc.
Mark Troy, L.P.
Marley Oakwood Properties, Inc.
New Castle Fifty Realty Corp.
Mark Twelve Associates, L.P.
Port Bay Associates, LLC
RD Soundview Associates, L.P.
RD Abington Associates, L.P.
RD Absecon Associates, L.P.
RD Absecon, Inc.
RD Bloomfield Associates, L.P.
RD Branch Associates, L.P.
RD Columbia Associates, L.P.
RD Elmwood Associates, L.P.
RD Hobson Associates, L.P.
RD Methuen Associates, L.P.
RD Smithtown Associates, LLC
RD Village Associates, L.P.
RD Whitegate Associates, L.P.
RD Woonsocket Associates, L.P.
Wesmark Fifty Realty Corp.
Wesmark Fifty, L.P.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-80390) pertaining to the Acadia Realty Trust (formerly Mark Centers
Trust) Restricted Share Plan, in the Registration Statement (Form S-8 No.
33-95966) pertaining to the Acadia Realty Trust (formerly Mark Centers Trust)
1994 Share Option Plan and Acadia Realty Trust (formerly Mark Centers Trust)
1994 Non-Employee Trustee's Share Option Plan and in the Registration Statement
(Form S-3 No. 33-85190) of Acadia Realty Trust (formerly Mark Centers Trust) of
our report dated March 12, 1999, with respect to the consolidated financial
statements and schedule of Acadia Realty Trust included in this Annual Report
(Form 10K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
New York, New York
March 30, 1999
5
0000899629
ACADIA REALTY TRUST
1,000
12-MOS
DEC-31-1998
JAN-01-1998
DEC-31-1998
15,183
0
7,860
1,854
0
0
551,249
87,202
528,512
0
277,561
0
0
0
154,566
528,512
0
59,771
0
46,529
0
11,560
18,302
0
0
(13,723)
175
0
0
(13,898)
(.91)
(.91)
