UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A-1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-12002 ACADIA REALTY TRUST (Exact name of registrant in its charter) MARYLAND 23-2715194 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20 SOUNDVIEW MARKETPLACE, PORT WASHINGTON, NY 11050 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 767-8830 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 [ ] As of May 8, 2001, there were 28,005,572 common shares of beneficial interest, par value $.001 per share, outstanding.
PURPOSE OF AMMENDMENT - --------------------- This Amendment to the Quarterly Report on Form 10-Q for Acadia Realty Trust for the quarterly period ended March 31, 2001 is being filed for the purpose of reflecting modifications to the following items: - -Part I, Item 1, Financial Statements (amended to modify notes 3 and 5 to the Financial Statements) - -Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations (amended to disclose information regarding Funds from Operations) Part I. Financial Information Item 1. Financial Statements ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) March 31, 2001 December 31, (unaudited) 2000 ----------- ----------- ASSETS Real estate Land $ 69,206 $ 69,206 Buildings and improvements 447,286 444,933 -------- -------- 516,492 514,139 Less: accumulated depreciation 106,520 102,461 -------- -------- Net real estate 409,972 411,678 Property held for sale 49,144 49,445 Cash and cash equivalents 15,705 22,167 Cash in escrow 5,737 5,213 Investments in unconsolidated partnerships 5,802 6,784 Rents receivable, net 9,047 9,667 Prepaid expenses 2,757 2,905 Deferred charges, net 12,668 13,026 Other assets 2,739 2,726 -------- -------- $513,571 $523,611 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable $271,387 $277,112 Accounts payable and accrued expenses 6,582 7,495 Dividends and distributions payable 4,228 4,241 Due to related parties 124 111 Other liabilities 4,420 4,179 -------- -------- Total liabilities 286,741 293,138 -------- -------- Minority interest in Operating Partnership 48,521 48,959 Minority interests in majority- owned partnerships 2,208 2,197 -------- -------- Total minority interests 50,729 51,156 -------- -------- Shareholders' equity: Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 28,011,672 and 28,150,472 shares, respectively 28 28 Additional paid-in capital 185,772 188,392 Accumulated other comprehensive income (596) -- Deficit (9,103) (9,103) -------- -------- Total shareholders' equity 176,101 179,317 -------- -------- $513,571 $523,611 ======== ======== See accompanying notes 1
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (in thousands, except per share amounts) March 31, March 31, 2001 2000 (unaudited) (unaudited) ----------- ----------- Revenues Minimum rents $ 17,446 $ 18,441 Percentage rents 732 751 Expense reimbursements 3,909 3,844 Other 502 827 -------- -------- Total revenues 22,589 23,863 -------- -------- Operating Expenses Property operating 6,198 5,986 Real estate taxes 2,800 2,713 Depreciation and amortization 4,964 5,015 General and administrative 1,189 1,293 -------- -------- Total operating expenses 15,151 15,007 -------- -------- Operating income 7,438 8,856 Equity in earnings of un- consolidated partnerships 152 200 Interest expense (5,278) (6,355) -------- -------- Income before extraordinary item, minority interest and cumulative effect of a change in accounting principal 2,312 2,701 Extraordinary item - Loss on early extinguishment of debt (140) -- Minority interest in Operating Partnership (440) (827) Cumulative effect of a change in accounting principal (149) -- -------- -------- Net income $ 1,583 $ 1,874 ======== ======== Net income per Common Share: Income before extraordinary item and cumulative effect of a change in accounting principal $ .08 $ .07 Extraordinary item (.01) -- Cumulative effect of a change in accounting principal (.01) -- -------- -------- Net income $ .06 $ .07 ========= ========= See accompanying notes 2
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (in thousands) March 31, March 31, 2001 2000 (unaudited) (unaudited) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,583 $1,874 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,964 5,015 Minority interests 440 827 Equity in earnings of unconsolidated partnerships (152) (200) Provision for bad debts 386 227 Stock-based compensation -- 197 Extraordinary item - Loss on early extinguishment of debt 140 -- Cumulative effect of a change in accounting principal 149 -- Changes in assets and liabilities: Funding of escrows, net (524) (712) Rents receivable 234 467 Prepaid expenses 148 305 Due to related parties 13 19 Other assets (99) (115) Accounts payable and accrued expenses (913) (558) Other liabilities 241 (575) ------- ------ Net cash provided by operating activities 6,610 6,771 ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for real estate and improvements (2,453) (2,440) Distributions from unconsolidated partnerships 538 503 Payment of deferred leasing costs (331) (668) ------- ------ Net cash used in investing activities (2,246) (2,605) ------- ------ See accompanying notes 3
ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (in thousands) March 31, March 31, 2001 2000 (unaudited) (unaudited) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgages $ (28,725) $(59,421) Proceeds received on mortgage notes 23,000 41,000 Payment of deferred financing and other costs (18) (1,066) Dividends paid (3,374) (3,089) Distributions to minority interests in Operating Partnership (817) (1,258) Distributions on preferred Operating Partnership Units (50) (23) Repurchase of Common Shares (842) (2,446) --------- -------- Net cash used in financing activities (10,826) (26,303) --------- -------- Decrease in cash and cash equivalents (6,462) (22,137) Cash and cash equivalents, beginning of period 22,167 35,340 --------- -------- Cash and cash equivalents, end of period $ 15,705 $ 13,203 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest, net of amounts capitalized of $52 and $169, respectively $ 5,488 $ 6,360 ========= ======== See accompanying notes 4
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 1. THE COMPANY Acadia Realty Trust (the "Company") 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") and its majority-owned partnerships. As of March 31, 2001, the Company controlled 81% of the Operating Partnership as the sole general partner. The Company currently operates fifty-seven properties, which it owns or has an ownership interest in, consisting of forty-seven neighborhood and community shopping centers, four redevelopment properties, one enclosed mall and five multi-family properties, all of which are located in the Eastern and Midwestern regions of the United States. 2. BASIS OF PRESENTATION The consolidated financial statements include the consolidated accounts of the Company and its majority owned partnerships, including the Operating Partnership, and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Non-controlling investments in partnerships are accounted for under the equity method of accounting as the Company exercises significant influence. The information furnished in the accompanying consolidated financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. For further information refer to the consolidated financial statements and accompanying footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"). In June 1999, the FASB issued Statement No. 137, which deferred the effective date of Statement No. 133 requiring it to be adopted for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company adopted the Statement effective January 1, 2001. The Statement requires 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. In connection with the adoption of the Statement, the Company recorded a transition adjustment of $149 related to the January 1, 2001 valuation of two LIBOR rate caps which hedge $23.6 million of variable-rate mortgage debt. This adjustment is reflected as a cumulative effect of a change in accounting principal in the accompanying financial statements. As the LIBOR rate caps had no intrinsic value as of March 31, 2001 due to a decline in market LIBOR rates since their inception, future changes in the fair value of the LIBOR rate caps are expected to be reflected in current earnings. As the remaining time-value portion of the fair value is not significant as of March 31, 2001, any further decreases in the fair value of the LIBOR rate caps are not expected to be material. The Company is also a party to two swap agreements with a bank through its 49% interest in the Crossroads Joint Venture and Crossroads II Joint Venture (see note 6). These swap agreements effectively fix the interest rate on the Company's pro rata share, or $16.9 million, of the joint venture mortgage debt. The Company recorded a $596 unrealized loss in other comprehensive income which reflects its pro rata share of the adjustment to fair value for the two swap agreements as of March 31, 2001. These swap agreements have no hedge ineffectiveness as they meet all the associated criteria under the Statement. Because these instruments have no hedge ineffectiveness, the interest rate differentials that arise under the swap agreements are recognized in earnings as they are periodically settled. Amounts in other comprehensive income are not amortized to earnings unless the swap agreements are terminated. At the maturity of the swaps, their fair value will be zero. 5
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 4. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS The following table summarizes the change in the shareholders' equity and minority interests since December 31, 2000: Minority Minority interests in interests in Shareholders' Operating majority-owned equity Partnership(1) partnerships ------ ----------- ------------ Balance at December 31, 2000 $179,317 $48,959 $ 2,197 Repurchase of Common Shares (842) -- -- Dividends and distributions declared of $0.12 per Common Share and Operating Partnership Unit (3,361) (817) -- Net income for the period January 1 through March 31, 2001 1,583 379 11 Other comprehensive income - Unrealized loss on valuation of swap agreements from unconsolidated partnerships (596) -- -- -------- ------- -------- Balance at March 31, 2001 $176,101 $48,521 $ 2,208 ======== ======= ======== (1) Net income attributable to minority interest in Operating Partnership and distributions do not include a distribution on Preferred OP Units of $50. Minority interests in Operating Partnership represent the limited partners' interest of 6,804,144 and 10,484,143 units in the Operating Partnership ("Common OP Units") at March 31, 2001 and 2000, respectively, and 2,212 units of preferred limited partnership interests ("Preferred OP Units"), with a nominal value of $1,000 per unit, which are entitled to a preferred quarterly distribution of $22.50 per unit (9% annually). Minority interests in majority-owned partnerships represent interests held by third parties in four partnerships in which the Company has a majority ownership position. 5. COMPREHENSIVE INCOME Comprehensive income for the three months ended March 31, 2001 totaled $987 and was comprised of net income of $1,583 and other comprehensive loss of $596. The following table sets forth the change in accumulated other comprehensive loss for the period since December 31, 2000: Accumulated other Comprehensive loss ----------------- Balance at December 31, 2000 $ -- Unrealized loss on valuation of swap agreements from unconsolidated partnerships 596 -------- Balance at March 31, 2001 $ 596 ======== As of March 31, 2001, the balance in accumulated other comprehensive loss was comprised entirely of unrealized losses on the valuation of swap agreements from unconsolidated partnerships. 6. INVESTMENT IN PARTNERSHIPS The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads II Joint Venture (collectively "Crossroads") and accounts for this investment using the equity method. Summary financial information of Crossroads and the Company's investment in and share of income from Crossroads follows: March 31, December 31, 2001 2000 ---- ---- Balance Sheet Assets: Rental property, net $ 8,018 $ 8,446 Other assets 3,984 4,655 -------- -------- Total assets $ 12,002 $ 13,101 ======== ======== Liabilities and partners' equity Mortgage note payable $ 34,519 $ 34,642 Other liabilities 748 736 Partners' equity (23,265) (22,277) -------- -------- Total liabilities and partners' equity $ 12,002 $ 13,101 ======== ======== Company's investment in partnerships $ 5,802 $ 6,784 ======== ======== 6
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 6. INVESTMENT IN PARTNERSHIPS, continued March 31, March 31, 2001 2000 ---- ---- Statement of Operations Total revenue $ 1,778 $ 1,865 Operating and other expenses 464 458 Interest expense 669 667 Depreciation and amortization 134 133 -------- -------- Net income $ 511 $ 607 ======== ======== Company's share of net income $ 250 $ 298 Amortization of excess investment (See below) 98 98 -------- -------- Income from partnerships $ 152 $ 200 ======== ======== 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. 7. MORTGAGE LOANS On January 8, 2001, the Company partially repaid $10,087 of fixed-rate mortgage debt, which was secured by two of the Company's properties, with a life insurance company. On March 30, 2001, the remaining outstanding debt of $7,912 with this lender was fully repaid. On March 29, 2001, the Company borrowed an additional $23,000 under an existing $59,000 secured financing line with a bank. As of March 31, 2001, $59,000 was outstanding under this line. On March 30, 2001, the Company fully repaid $9,851 of outstanding debt with a bank which was collateralized by one of the Company's properties. 8. RELATED PARTY TRANSACTIONS The Company currently manages two 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 3.0% and 3.25% of collections, respectively. During 2000, the Company also managed a third property owned by a related party earning fees at a rate of 3.5% of collections. This contract was terminated in November of 2000. Fees earned under these contracts aggregated $95 and $237 during the three month periods ended March 31, 2001 and 2000, respectively. 9. DIVIDENDS AND DISTRIBUTIONS PAYABLE On March 8, 2001, the Board of Trustees of the Company approved and declared a cash quarterly dividend for the quarter ended March 31, 2001 of $0.12 per Common Share and Common OP Unit. The dividend was paid on April 13, 2001 to the shareholders of record as of March 30, 2001. The Board of Trustees also approved a distribution of $22.50 per Preferred OP Unit which was paid on April 13, 2001. 7
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 10. PER SHARE DATA For the three month periods ended March 31, 2001 and 2000, basic earnings per share was determined by dividing the net income applicable to common shareholders for each period by the weighted average number of common shares of beneficial interest ("Common Shares") outstanding during each period consistent with the Financial Accounting Standards Board Statement No. 128. The weighted average number of shares outstanding for the three month periods ended March 31, 2001 and 2000 were 28,091,479 and 25,476,098, 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 three month periods ended March 31, 2001 and 2000 no additional shares were reflected as the impact would be anti-dilutive in such years. 11. SEGMENT REPORTING The Company has two reportable segments: retail properties and multi-family properties. 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 the retail versus residential tenants. March 31, 2001 -------------- Retail Multi-Family All Properties Properties Other Total ---------- ----------- ----- -------- Revenues $ 18,391 $ 3,926 $ 272 $ 22,589 Property operating expenses and real estate taxes 7,437 1,561 - 8,998 Net property income before depreciation, amortization and certain nonrecurring items 10,954 2,365 272 13,591 Depreciation and amortization 4,321 547 96 4,964 Interest expense 4,139 1,139 - 5,278 Real estate at cost 432,914 83,578 - 516,492 Total assets 426,281 81,488 5,802 513,571 Gross leasable area (multi-family - 2,273 units) 8,644 2,039 - 10,683 Expenditures for real estate and improvements 2,173 280 - 2,453 Reconciliation to income before minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 13,591 Depreciation and amortization (4,964) General and administrative (1,189) Equity in earnings of unconsolidated partnerships 152 Interest expense (5,278) -------- Income before extraordinary item, minority interest and cumulative effect of a change in accounting principal $ 2,312 ======== 8
ACADIA REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) 11. SEGMENT REPORTING (continued) March 31, 2000 -------------- Retail Multi-Family All Properties Properties Other Total ---------- ----------- ----- -------- Revenues $ 19,482 $ 3,791 $ 590 $ 23,863 Property operating expenses and real estate taxes 7,274 1,425 - 8,699 Net property income before depreciation, amortization and certain nonrecurring items 12,208 2,366 590 15,164 Depreciation and amortization 4,395 498 122 5,015 Interest expense 5,239 1,066 50 6,355 Real estate at cost 489,387 82,462 - 571,849 Total assets 454,171 86,000 7,160 547,331 Gross leasable area (multi-family - 2,273 units) 8,817 2,039 - 10,856 Expenditures for real estate and improvements 2,124 316 - 2,440 Reconciliation to income before minority interest Net property income before depreciation, amortization and certain nonrecurring items $ 15,164 Depreciation and amortization (5,015) General and administrative (1,293) Equity in earnings of unconsolidated partnerships 200 Interest expense (6,355) -------- Income before minority interest $ 2,701 ======== 12. SUBSEQUENT EVENTS On April 10, 2001 the Company repaid $3,500 of outstanding debt under a revolving credit facility with a bank. Following this repayment, the Company had no outstanding balance under this facility, which provides for total borrowings of up to $7,400. 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is based on the consolidated financial statements of Acadia Realty Trust (the "Company") as of March 31, 2001 and 2000 and for the three months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. FORWARD-LOOKING STATEMENTS Certain statements contained in this report 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. RESULTS OF OPERATIONS Comparison of the three month period ended March 31, 2001 ("2001") to the three month period ended March 31, 2000 ("2000") Total revenues decreased $1.3 million, or 5%, to $22.6 million for 2001 compared to $23.9 million for 2000. Minimum rents decreased $1.0 million, or 5%, to $17.4 million for 2001 compared to $18.4 million for 2000. Of this decrease, $1.5 million was due to the loss of rents following the sale of the Northwood Centre in December 2000. An additional $200,000 decrease in rents resulted from the planned termination of various tenant leases at the Abington Towne Center in June 2000 as part of the redevelopment and partial sale of the center. Partially offsetting these decreases was an increase in rents due to general increases in occupancy throughout the balance of the portfolio during fiscal 2000 and 2001. In total, expense reimbursements increased $65,000, or 2%, from $3.8 million for 2000 to $3.9 million for 2001. Common area maintenance ("CAM") expense reimbursements of $1.8 million were essentially unchanged from 2000. An increase in real estate tax reimbursements of $100,000 was primarily the result of general increases in real estate tax expense throughout the portfolio. Other income decreased $325,000, or 39%, to $502,000 in 2001 compared to $827,000 for 2000. This was primarily due to a decrease of $154,000 in third-party property management fees earned in 2001 following the cancellation of one management contract in November 2000 and a $175,000 decrease in interest income due to lower interest earning assets in 2001. Total operating expenses increased $144,000, or 1%, to $15.2 million for 2001, from $15.0 million for 2000. Property operating expenses increased $212,000, or 4%, to $6.2 million for 2001 compared to $6.0 million for 2000. This increase was a combination of higher payroll costs, an increase in CAM expenses (primarily snow removal costs) throughout the portfolio and an increase in bad debt expense in 2001. These increases were partially offset by a $499,000 decrease in property operating expenses following the sale of the Northwood Centre in December 2000. Real estate taxes increased $87,000, or 3%, from $2.7 million for 2000 to $2.8 million for 2001. This increase was due to higher real estate taxes experienced generally throughout the portfolio. Offsetting this increase was a decrease in taxes following the sale of the Northwood Centre. 10
RESULTS OF OPERATIONS, continued Depreciation and amortization decreased $51,000 for 2001, of which $50,000 resulted from a decrease in depreciation expense. This decrease was a result of the sale of the Northwood Centre partially offset against increased depreciation expense related to capitalized tenant installation costs during fiscal 2000 and 2001. General and administrative expense decreased $104,000, or 8%, from $1.3 million for 2000 to $1.2 million for 2001, which was primarily attributable to a $125,000 decrease in third-party professional fees in 2001. Interest expense of $5.3 million for 2001 decreased $1.1 million, or 17%, from $6.4 million for 2000. Of this decrease, $405,000 was the result of a lower average interest rate on the portfolio mortgage debt and $839,000 was due to lower average outstanding borrowings following certain loan payoffs during fiscal 2000 and 2001, including the debt related to the Northwood Centre which was sold in December 2000. These decreases were partially offset by $117,000 less capitalized interest in 2001. The $140,000 extraordinary loss in 2001 was a result of the write-off of deferred financing fees as a result of the early repayment of the related debt. Funds from Operations The Company considers funds from operations ("FFO") as defined by the National Association of Real Estate Investment Trusts ("NAREIT") to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing the performance of the Company. However, the Company's method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by accounting principles generally accepted in the United States ("GAAP") and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating the Company's performance or to cash flows as a measure of liquidity. NAREIT defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Effective January 1, 2000, NAREIT clarified the definition of FFO to include non-recurring events except those that are defined as "extraordinary items" under GAAP. The reconciliation of net income to FFO for the three month periods ended March 31, 2001 and 2000 is as follows: For the quarter ended March 31, 2001 2000 ---- ---- Net income $1,583 $1,874 Depreciation of real estate and amortization of leasing costs: Wholly-owned and consolidated partnerships 4,689 4,737 Unconsolidated partnerships 157 156 Income attributable to minority interest in Operating Partnership (a) 379 780 Extraordinary item 140 -- Cumulative effect of a change in accounting principal 149 -- ------ ------ Funds from operations $7,097 $7,547 ====== ====== (a) Does not include distributions paid to Preferred OP Unitholders for the quarter ended March 31, 2001 and 2000. 11
LIQUIDITY AND CAPITAL RESOURCES Uses of Liquidity The Company's principal uses of its liquidity are expected to be for distributions to its shareholders and OP unitholders, debt service and loan repayments, and property investment which includes acquisition, redevelopment, expansion and retenanting activities. In order to qualify as a REIT for Federal income tax purposes, the Company must currently distribute at least 90% of its taxable income to its shareholders. On March 8, 2001, the Board of Trustees of the Company approved and declared a cash quarterly dividend for the quarter ended March 31, 2001 of $0.12 per Common Share and Common OP Unit. The dividend was paid on April 13, 2001 to the shareholders of record as of March 30, 2001. The Board of Trustees also approved a distribution of $22.50 per Preferred OP Unit which was paid on April 13, 2001. Property Redevelopment and Expansion The Company's redevelopment program focuses on selecting well-located neighborhood and community shopping centers and creating significant value through retenanting and property redevelopment. The Company currently has four properties under redevelopment as follows: Abington Towne Center - The Company has completed the first phase of redevelopment of this previously enclosed multi-level mall located in the Philadelphia suburb of Abington, Pennsylvania. In 2000, the Company sold approximately 160,000 square feet representing the top two floors and the rear portion of the ground level and the related parking area to the Target Corp. which is currently building out the space and is expected to open prior to the end of 2001. The Company has "de-malled" the balance of the center consisting of approximately 46,000 square feet of the main building and 14,000 square feet of store space in outparcel buildings which it will continue to own and operate. Costs incurred on this project (net of reimbursements from Target) through March 31, 2001 totaled $2.7 million with approximately $1.0 million of costs remaining to complete the redevelopment of this property. Elmwood Park Shopping Center - This center, located in Elmwood Park, New Jersey, is approximately ten miles west of New York City. The redevelopment consists of reanchoring, renovating and expanding the existing 125,000 square foot shopping center by 30,000 square feet. The new anchor, a 48,000 square foot free-standing A&P supermarket, will replace an undersized (28,000 square feet) in-line Grand Union supermarket when completed. The project also includes the expansion of an existing Walgreens drug store. As of March 31, 2001, costs incurred on this project totaled $643,000. The Company expects remaining redevelopment costs of approximately $8.6 million to complete this project in 2002. In conjunction with the A&P supermarket rent commencement, the Operating Partnership is also obligated to issue OP Units equal to $2.75 million. Methuen Shopping Center - This center, located in Methuen, Massachusetts (part of the Boston metropolitan statistical area) was formally anchored by a Caldor department store. The Company acquired this lease out of bankruptcy and has executed a lease with Wal*Mart for an 89,000 square foot department store which is projected to open in the fourth quarter of 2001. Projected costs to complete this project are approximately $400,000. Gateway Shopping Center - The redevelopment of the Gateway Shopping Center, a partially enclosed mall located in South Burlington, Vermont, includes the recapture of a 32,000 square foot former Grand Union store, demolition of 90% of the property and the construction of a new anchor tenant. Following the bankruptcy of Grand Union, the lease was assigned to Shaw's supermarket. The Company is currently in discussions with Shaw's to continue with the redevelopment of this center. Additionally, the Company currently estimates that for the remaining portfolio, capital outlays of approximately $2.5 million will be required during 2001 for tenant improvements, related renovations and other property improvements related to executed leases. Share Repurchase Plan The Company's repurchase of its Common Shares is an additional use of liquidity. In January 2001, the Board of Trustees approved a continuation and expansion of the Company's existing stock repurchase program. Management is authorized, at its discretion, to repurchase up to an additional $10.0 million of the Company's outstanding Common Shares. Through May 8, 2001, the Company had repurchased 1,793,642 (net of 86,063 shares reissued) at a total cost of $10.6 million under the expanded share repurchase program which allows for the repurchase of up to $20.0 million of the Company's outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that the Company will purchase the full amount authorized. 12
LIQUIDITY AND CAPITAL RESOURCES, continued Sources of Liquidity Sources of capital for funding property acquisition, redevelopment, expansion and retenanting, as well as repurchase of Common Shares are expected to be obtained primarily from cash on hand, additional debt financings and sales of existing properties. As of March 31, 2001, the Company has a total of $8.4 million of additional capacity with two lenders. The Company also has 15 properties that are currently unencumbered and therefore available as potential collateral for future borrowings. 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. Financing and Debt As of March 31, 2001 interest on the Company's mortgage indebtedness ranged from 6.5% to 9.6% with maturities that ranged from March 2002 to November 2021. Of the total outstanding debt, $124.8 million, or 46%, was carried at fixed interest rates with a weighted average of 8.4%, and $146.6 million, or 54%, was carried at variable rates with a weighted average of 7.7%. Of the total outstanding debt, $78.7 million will become due by 2003, with scheduled maturities of $55.9 million at an interest rate of 7.3% in 2002 and $22.8 million at an interest rate of 7.2% in 2003. No outstanding debt matures in 2001. The Company expects to refinance maturing debt or select other alternatives based on market conditions at that time, although there can be no assurance as to the consummation or terms of such refinancings. The following summarizes certain significant financing transactions completed since December 31, 2000: On January 8, 2001, the Company partially repaid $10.1 million of fixed-rate mortgage debt, which was secured by two of the Company's properties, with a life insurance company. On March 30, 2001, the remaining outstanding debt of $7.9 million with this lender was fully repaid. On March 29, 2001, the Company borrowed an additional $23.0 million under an existing $59.0 million secured financing line with a bank. As of March 31, 2001, $59.0 million was outstanding under the Line. On March 30, 2001, the Company fully repaid $9.9 million of outstanding debt with a bank which was collateralized by one of the Company's properties. On April 10, 2001 the Company repaid $3.5 million of outstanding debt under a revolving credit facility with a bank. Following this repayment, the Company had no outstanding balance under this facility, which provides for total borrowings of up to $7.4 million. 13
LIQUIDITY AND CAPITAL RESOURCES, continued Financing and Debt, continued The following table summarizes the Company's mortgage indebtedness as of March 31, 2001: March 31, December 31, Interest 2001 2000 Rate ------- ------- ------ Mortgage notes payable - variable-rate Fleet Bank, N.A. 4,096 4,110 6.81% (LIBOR + 1.75%) Fleet Bank, N.A. 9,189 9,216 6.84% (LIBOR + 1.78%) Sun America Life Insurance Company 13,725 13,774 7.58% (LIBOR + 2.05%) Sun America Life Insurance Company 9,824 9,856 8.45% (LIBOR + 2.05%) KBC Bank 14,165 14,238 6.53% (LIBOR + 1.25%) Fleet Bank, N.A. 3,500 3,500 6.74% (LIBOR + 1.50%) Fleet Bank, N.A. 8,938 8,965 7.03% (LIBOR + 1.75%) Metropolitan Life Insurance Company 10,800 10,800 7.42% (LIBOR + 2.00%) First Union National Bank 13,605 13,636 6.51% (LIBOR + 1.45%) Dime Savings Bank of NY 58,737 35,814 7.06% (LIBOR + 1.75%) -------- -------- Total variable-rate debt 146,579 123,909 -------- -------- Mortgage notes payable - fixed rate Huntoon Hastings Capital Corp. 6,222 6,222 7.50% Anchor National Life Insurance Company 3,751 3,775 7.93% Lehman Brothers Holdings, Inc. 17,744 17,792 8.32% Mellon Mortgage Company 7,409 7,442 9.60% Northern Life Insurance Company 2,828 2,895 7.70% Reliastar Life Insurance Company 1,950 1,996 7.70% Metropolitan Life Insurance Company 25,069 25,148 8.13% Bank of America, N.A. 11,081 11,100 7.55% Bank of America, N.A. 5,541 5,550 7.55% Morgan Stanley Mortgage Capital 43,213 43,397 8.84% Sun America Life Insurance Company -- 17,999 7.75% North Fork Bank -- 9,887 7.75% -------- -------- Total fixed-rate debt 124,808 153,203 -------- -------- $271,387 $277,112 ======== ======== 14
LIQUIDITY AND CAPITAL RESOURCES, continued Financing and Debt, continued Properties Payment Maturity Encumbered Terms ---------- ---------- ------- Mortgage notes payable - variable-rate Fleet Bank, N.A. 03/15/02 (1) (2) Fleet Bank, N.A. 05/31/02 (3) (2) Sun America Life Insurance Company 08/01/02 (4) (2) Sun America Life Insurance Company 10/01/02 (5) (2) KBC Bank 12/31/02 (6) (2) Fleet Bank, N.A. 03/01/03 (7) (2) Fleet Bank, N.A. 08/01/03 (8) (2) Metropolitan Life Insurance Company 11/01/03 (9) (22) First Union National Bank 01/01/05 (10) (2) Dime Savings Bank of NY 04/01/05 (11) (2) Mortgage notes payable - fixed rate Huntoon Hastings Capital Corp. 09/01/02 (12) (13) Anchor National Life Insurance Company 01/01/04 (14) $33(2) Lehman Brothers Holdings, Inc. 03/01/04 (15) $139(2) Mellon Mortgage Company 05/23/05 (16) $70(2) Northern Life Insurance Company 12/01/08 (17) $41(2) Reliastar Life Insurance Company 12/01/08 (17) $28(2) Metropolitan Life Insurance Company 11/01/10 (18) $197(2) Bank of America, N.A. 01/01/11 (19) $78(2) Bank of America, N.A. 01/01/11 (20) $39(2) Morgan Stanley Mortgage Capital 11/01/21 (21) $380(2) Sun America Life Insurance Company -- -- -- North Fork Bank -- -- -- Notes: (1) Town Line Plaza (11) Ledgewood Mall (19) GHT Apartments New Louden Center (2) Monthly principal and interest Route 6 Plaza (20) Colony Apartments Bradford Towne Centre (3) Smithtown Shopping Center Berlin Shopping Center (21) Midway Plaza Kings Fairgrounds (4) Merrillville Plaza (12) Gateway Shopping Center Plaza 15 Ames Plaza (5) Village Apartments (13) Interest only until 5/01; monthly Martintown Plaza principal and interest thereafter Shillington Plaza (6) Marley Run Apartments Dunmore Plaza (14) Pittston Plaza Kingston Plaza (7) Marketplace of Absecon 25th Street Shopping Center (15) Glen Oaks Apartments Circle Plaza (8) Soundview Marketplace Northside Mall (16) Mad River Station Shopping Center Monroe Plaza (9) Green Ridge Plaza New Smyrna Beach Luzerne Street Plaza (17) Manahawkin Shopping Center Mountainville Plaza Valmont Plaza Cloud Springs Plaza (18) Crescent Plaza Birney Plaza (10) 239 Greenwich Avenue East End Centre Troy Plaza (22) Interest only until 5/02; monthly principal and interest thereafter 15
HISTORICAL CASH FLOW The following discussion of historical cash flow compares the Company's cash flow for the three month period ended March 31, 2001 ("2001") with the Company's cash flow for the three month period ended March 31, 2000 ("2000"). Net cash provided by operating activities of $6.6 million for 2001, in total, was essentially consistent with 2000. Investing activities used $2.2 million during 2001, representing a $400,000 decrease from $2.6 million of cash used during 2000. This was primarily the result of a $300,000 decrease in expenditures for real estate acquisitions, development and tenant installation in 2001. Net cash used in financing activities of $10.8 million for 2001 decreased $15.5 million compared to $26.3 million used in 2000. The decrease resulted primarily from $30.7 million of additional cash used in 2000 for the repayment of debt and $1.6 million of additional cash used in 2000 for the repurchase of Common Shares. This was partially offset by a decrease of $17.0 million of cash provided by additional borrowings and related financing costs in 2001. 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. 16
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has fully caused this amendment on Form 10-Q/A to its Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. ACADIA REALTY TRUST /s/ Perry Kamerman ------------------------ By: Perry Kamerman Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: July 24, 2001 17