EDGAR 10-K Filing

Company CIK: 899629
Filing Year: 2021
Filename: 899629_10-K_2021_0001564590-21-007196.json

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ITEM 1. BUSINESS

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ITEM 1A. RISK FACTORS
ITEM 1A.
RISK FACTORS.
Set forth below are the risk factors that we believe are material to our investors. You should carefully consider these risk factors, together with all of the other information included in this Report, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities. The occurrence of any of the following risks could adversely affect our financial condition, cash flows, results of operations, and ability to satisfy our debt service obligations and to make distributions to our shareholders. In such case, the trading price of our Common Shares could decline, and you may lose all or a significant part of your investment. This section includes or refers to certain forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this Report.
The following risk factors are not exhaustive. Other sections of this Report may include additional factors that could adversely affect our financial condition, cash flows, results of operations, and ability to satisfy our debt service obligations and to make distributions to our shareholders. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may affect our business. Investors should also refer to our quarterly reports on Form 10-Q and current reports on Form 8-K for future periods for material updates to these risk factors.
Risk factors pertaining to our Company generally fall within the following broad areas:
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risks related to our business, properties and tenants;
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risks related to litigation, environmental matters and government regulation;
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risks related to our management and structure;
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risks related to our REIT status; and
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general risk factors.
RISKS RELATED TO OUR BUSINESS, OUR PROPERTIES AND OUR TENANTS
Actual or perceived threats associated with epidemics, pandemics or other public health crises, including the COVID-19 Pandemic, could have a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, cash flow, liquidity, and ability to access the capital markets and satisfy debt service obligations.
Epidemics, pandemics or other public health crises, including the current COVID-19 Pandemic, that impact economic and market conditions, particularly in the markets where our properties are located, and preventative measures taken to alleviate their impact, including mandatory business shutdowns, “shelter-in-place” or “stay-at-home” orders issued by local, state or federal authorities, may have a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, liquidity, and ability to access capital markets and satisfy debt service obligations.
Our retail tenants depend on in-person interactions with their customers to generate unit-level profitability, and an epidemic, pandemic or other public health crisis may decrease customer willingness to frequent, and mandated “shelter-in-place” or “stay-at-home” orders may prevent customers from frequenting, our tenants’ businesses, which may result in their inability to maintain profitability and make timely rental payments to us under their leases. Such restrictions may also affect customer behavior longer term by, among others, creating a preference for e-commerce. We own properties across the United States, including in some of the states that have been significantly impacted by the COVID-19 Pandemic, such as New York, New Jersey, Massachusetts, Pennsylvania and California. As of December 31, 2020, approximately 88% and 82% (based on annualized base rent, “ABR”) of Core Portfolio and Fund Portfolio retail tenants, respectively, are open or partially open for business. We cannot presently determine when or how many of our remaining tenants will reopen. As of December 31, 2020, we collected approximately 91% and 82% of Core Portfolio and Fund Portfolio pre-COVID billings (original contract rents without regard to
deferral or abatement agreements excluding the impact of any security deposits applied against tenant accounts), respectively, for the fourth quarter 2020. We have negotiated rent concessions, substantially in the form of deferrals, with select tenants. We currently anticipate the above circumstances to negatively impact our revenues potentially for the remainder of 2021.
Moreover, the ongoing COVID-19 Pandemic and restrictions intended to prevent and mitigate its spread could have additional adverse effects on our business, including with regards to:
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the ability and willingness of our tenants to renew their leases upon expiration, our ability to re-lease the properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant, particularly in light of the adverse impact to the financial health of many retailers that has occurred and continues to occur as a result of the COVID-19 Pandemic and the significant uncertainty as to when and the conditions under which potential tenants will be able to operate physical retail locations in the future;
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temporary or permanent migration out of major cities by customers, including cities where our properties are located, which may have a negative impact on our tenants’ businesses;
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anticipated returns from development and redevelopment projects, which have been temporarily suspended;
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to the extent we were seeking to sell properties in the near term, significantly greater uncertainty regarding our ability to do so at attractive prices,
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the broader impact of the severe economic contraction due to the COVID-19 Pandemic, the resulting increase in unemployment that has occurred in the short-term and its effect on consumer behavior, and negative consequences that will occur if these trends are not timely reversed;
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macroeconomic conditions, such as a disruption of or lack of access to the capital markets and the adverse impact of the recent significant decline in our share price from prices prior to the spread of the COVID-19 Pandemic;
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our ability to obtain additional indebtedness or pay down, refinance, restructure or extend our indebtedness as it becomes due, and the negative impact of reductions in rent on financial covenants related to corporate and/or property-level debt; and
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potential reduction in our operating effectiveness as employees work remotely or if key personnel become unavailable due to illness or other personal circumstances related to COVID-19, as well as increased cybersecurity risks relating to the use of remote technology.
The COVID-19 Pandemic and restrictions intended to prevent and mitigate its spread have already had a significant adverse impact on economic and market conditions around the world, including the United States and markets where our properties are located, which began during the first quarter of 2020 and could further trigger a period of sustained global and U.S. economic downturn or recession. While the rapid developments regarding the COVID-19 Pandemic preclude any prediction as to its ultimate adverse impact, the current economic, political and social environment presents material risks and uncertainties with respect to our and our tenants’ business, financial condition, results of operations, cash flows, liquidity and ability to access the capital markets and satisfy debt service obligations. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described herein.
There are risks relating to investments in real estate that could adversely affect our financial condition, cash flows, results of operations, and ability to satisfy our debt service obligations and make distributions to our shareholders.
Real property investments are subject to multiple risks. Real estate values are affected by a number of factors, including: changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand), the quality and philosophy of management, competition from other available space, and the ability to provide adequate maintenance and insurance and to control variable operating costs. Retail properties, in particular, may be affected by changing perceptions of retailers or shoppers regarding the convenience and attractiveness of the property and by the overall climate for the retail industry. Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws. A significant portion of our income is derived from rental income from real property. Our income and cash flow would be adversely affected if we were unable to rent our vacant space to viable tenants on economically favorable terms or at all. In the event of default by a tenant, we may experience delays in enforcing, as well as incur substantial costs to enforce, our rights as a landlord. In addition, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced even though there may be a reduction in income from the investment.
We rely on revenues derived from tenants, in particular our key tenants, and a decrease in those revenues could adversely affect our ability to make distributions to our shareholders.
Revenue from our properties depends primarily on the ability of our tenants to pay the full amount of rent and other charges due under their leases on a timely basis. We derive significant revenues from a concentration of 20 key tenants which occupy space at more than one property and collectively account for approximately 24.4% of our consolidated revenue. We could be adversely affected in the event of the bankruptcy
or insolvency of, or a downturn in the business of, any of our key tenants, or in the event that any such tenant does not renew its leases as they expire or renews such leases at lower rental rates. See “Item 2. Properties-Major Tenants” in this Report for quantified information with respect to the percentage of our minimum rents received from major tenants.
Anchor tenants and co-tenancy are crucial to the success of retail properties and vacated anchor space directly and indirectly affects our rental revenues.
Certain of our properties are supported by “anchor” tenants. Anchor tenants pay a significant portion of the total rents at a property and contribute to the success of other tenants by drawing large numbers of customers to a property. Vacated anchor space not only directly reduces rental revenues, but, if not re-tenanted with a tenant with comparable consumer attraction, could adversely affect the rest of the property primarily through the loss of customer drawing power. This can also occur through the exercise of the right that most anchors have, to vacate and prevent re-tenanting by paying rent for the balance of the lease term (“going dark”), such as the case of the departure of a “shadow” anchor tenant that is owned by another landlord. In addition, in the event that certain anchor tenants cease to occupy a property, such an action results in a significant number of other tenants having the contractual right to terminate their leases, or pay a reduced rent based on a percentage of the tenant's sales, at the affected property, which could adversely affect the future income from such property, also known as “co-tenancy.” Although it may not directly reduce our rental revenues, and there are no contractual co-tenancy conditions, vacant retail space adjacent to, or even on the same block as our street and urban properties may similarly affect shopper traffic and re-tenanting activities at our properties. See “Item 2. Properties-Major Tenants” in this Report.
The bankruptcy of, or a downturn in the business of, any of our major tenants or a significant number of our smaller tenants may adversely affect our financial condition, cash flows, results of operations and property values.
The bankruptcy of, or a downturn in the business of, any of our major tenants causing them to reject their leases, or to not renew their leases as they expire, or renew at lower rental rates, may adversely affect our cash flows and property values. Furthermore, the impact of vacated anchor space and the potential reduction in customer traffic may adversely impact the balance of tenants at a shopping center.
Historically and from time to time, certain of our tenants experienced financial difficulties and filed for bankruptcy protection, typically under Chapter 11 of the United States Bankruptcy Code (“Chapter 11 Bankruptcy”). Pursuant to bankruptcy law, tenants have the right to reject some or all of their leases. In the event a tenant exercises this right, the landlord generally has the right to file a claim for lost rent equal to the greater of either one year's rent (including tenant expense reimbursements) for remaining terms greater than one year, or 15% of the rent remaining under the balance of the lease term, but not to exceed three years rent. Actual amounts to be received in satisfaction of those claims will be subject to the tenant's final bankruptcy plan and the availability of funds to pay its creditors. There can be no assurance that our major tenants will not declare bankruptcy, in which case we may be unable to recoup past and future rent in full, and to re-lease a terminated or rejected space on comparable terms or at all.
We may not be able to renew current leases or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms.
Upon the expiration of current leases for space located in our properties, we may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to us than current lease terms. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in revenues. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. See “Item 2. Properties-Lease Expirations” in this Report for additional information regarding the scheduled lease expirations in our portfolio.
Our business is significantly influenced by demand for retail space generally, and a decrease in such demand may have a greater adverse effect on our business than if we owned a more diversified real estate portfolio.
A decrease in the demand for retail space, may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. The market for retail space has been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large retailing companies and bankruptcy incidence, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets, and increasing consumer purchases through the Internet. To the extent that any of these conditions occur, they are likely to negatively affect market rents for retail space and could adversely affect our financial condition, cash flows, results of operations, the trading price of our Common Shares and our ability to satisfy our debt service obligations and to pay distributions to our shareholders.
E-commerce can have an impact on our business because it may cause a downturn in the business of our current tenants and affect future leases.
The use of the Internet by retail consumers continues to gain in popularity and the migration toward e-commerce is expected to continue. The increase in Internet sales could result in a downturn in the business of our current tenants in their “brick and mortar” locations, adversely impacting their ability to satisfy their rent obligations, and could affect the way future tenants lease space.
While we devote considerable effort and resources to analyze and respond to tenant trends, preferences and consumer spending patterns, we cannot predict with certainty what future tenants will want, what future retail spaces will look like and how much revenue will be generated at traditional “bricks and mortar” locations. If we are unable to anticipate and respond promptly to trends in the market because of the illiquid nature of real estate (See the Risk Factor entitled, “Our ability to change our portfolio is limited because real estate investments are illiquid” below), our occupancy levels and financial results could suffer.
Many of our real estate costs are fixed, even if income from our properties decreases, which would cause a decrease in net income.
Our financial results depend primarily on leasing space at our properties to tenants on terms favorable to us. Costs associated with real estate investment, such as real estate taxes, insurance and maintenance costs, generally are not reduced even when a property is not fully occupied, rental rates decrease, or other circumstances cause a reduction in income from the property. As a result, cash flow from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to fully lease our properties on favorable terms. Additionally, properties that we develop or redevelop may not produce any significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with such projects until they are fully occupied.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited, which could adversely affect our financial condition, cash flows, and ability to satisfy our debt service obligations and to make distributions to our shareholders. In addition, the Code contains restrictions on a REITs ability to dispose of properties that are not applicable to other types of real estate companies. Our Board may establish investment criteria or limitations as it deems appropriate, but it currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. As discussed under the heading “Our Board may change our investment policy without shareholder approval” below, we could change our investment, disposition and financing policies and objectives without a vote of our shareholders, but such change may be delayed or more difficult to implement due to the illiquidity of real estate.
We could be adversely affected by conditions in the markets where our properties are geographically concentrated.
Our performance depends on the economic conditions in markets where our properties are geographically concentrated. We have significant exposure to the greater New York and Chicago metropolitan regions, from which we derive 34.2% and 8.2% of the annual base rents within our Core Portfolio, respectively, and 16.3% and 6.8% of annual base rents within our Funds, respectively. Our operating results could be adversely affected if market conditions, such as an oversupply of space or a reduction in demand for real estate, occur in these areas.
Our development and construction activities could affect our operating results.
We intend to continue the selective development and construction of retail properties (see “Item 1. Business -Investing Activities-Funds-Development Activities”).
As opportunities arise, we may delay construction until sufficient pre-leasing is reached and financing is in place. Our development and construction activities include the risk that:
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we may abandon development opportunities after expending resources to determine feasibility;
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construction costs of a project may exceed our original estimates;
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occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;
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financing for development of a property may not be available to us on favorable terms;
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we may not complete construction and lease-up on schedule, resulting in increased debt service expense and construction costs, including labor and material costs; and
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we may not be able to obtain, or may experience delays in obtaining necessary zoning and land use approvals as well as building, occupancy and other required governmental permits and authorizations.
In addition, the entitlement and development of real estate entails extensive approval processes, sometimes involving multiple regulatory jurisdictions. It is common for a project to require multiple approvals, permits and consents from U.S. federal, state and local governing and regulatory bodies. Compliance with these and other regulations and standards is time intensive and costly and may require additional long range infrastructure review and approvals which can add to project cost. In addition, development of properties containing delineated wetlands may require one or more permits from the U.S. federal government and/or state and local governmental agencies. Any of these issues can materially affect the cost, timing and economic viability of our development and redevelopment projects.
At times, we may also be required to use unionized construction workers or to pay the prevailing wage in a jurisdiction to unionized workers, which could increase projects costs and the risk of a strike, thereby affecting construction timelines.
Additionally, the time frame required for development, construction and lease-up of these properties means that we may not realize a significant cash return for several years. If any of the above events occur, the development of properties may hinder our growth and could have an adverse effect on our financial condition, cash flows and results of operations. In addition, new development activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management.
Developments and acquisitions may fail to perform as expected which could adversely affect our results of operations.
Our investment strategy includes the development and acquisition of retail properties in supply constrained markets in densely populated areas with high average household incomes and significant barriers to entry. The acquisition of such properties is highly competitive. Additionally, the development and acquisition of such properties entails risks that include the following, any of which could adversely affect our financial condition, cash flows, results of operations, and our ability to meet our debt obligations and make distributions to shareholders:
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The property may fail to achieve the returns we have projected, either temporarily or for extended periods;
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We may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify;
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We may not be able to integrate an acquisition into our existing operations successfully;
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Properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project or within the time frames we project which may result in the properties' failure to achieve the returns we projected;
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Our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs until after the property is acquired, which could significantly increase our total acquisition costs or decrease cash flow from the property; and
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Our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.
Historically, Fund I, Mervyns I and Fund III have provided Promote income. There can be no assurance that our joint ventures will continue to operate profitably and thus provide additional Promote income in the future. These factors could limit the return that we receive from such investments or cause our cash flows to be lower than our estimates. In addition, a partner or co-venturer may not have access to sufficient capital to satisfy its funding obligations to the joint venture.
Our real estate assets may be subject to impairment charges.
We periodically assess whether there are any indicators that the value of our real estate assets and other investments may be impaired. A property’s value is considered to be impaired only if the estimated aggregate future undiscounted property cash flows are less than the carrying value of the property. In our estimate of cash flows, we consider factors such as trends and prospects and the effects of demand and competition on expected future operating income. If we are evaluating the potential sale of an asset or redevelopment alternatives, the undiscounted future cash flows consider the most likely course of action as of the balance sheet date based on current plans, intended holding periods and available market information. We are required to make subjective assessments as to whether there are impairments in the value of our real estate assets and other investments. Impairment charges have an immediate direct impact on our earnings. There can be no assurance that we will not take additional charges in the future related to the impairment of our assets. Any future impairment could have a material adverse effect on our operating results in the period in which the charge is taken.
If a third-party vendor fails to provide agreed upon services, we may suffer losses.
We are dependent and rely on third party vendors, including Cloud providers, for redundancy of our network, system data, security and data integrity. If a vendor fails to provide services as agreed, suffers outages, business interruptions, financial difficulties or bankruptcy, we may experience service interruption, delays or loss of information. Cloud computing is dependent upon having access to an Internet connection in order to retrieve data. If a natural disaster, blackout or other unforeseen event were to occur that disrupted the ability to obtain an Internet
connection, we may experience a slowdown or delay in our operations. We conduct appropriate due diligence on all services providers and restrict access, use and disclosure of personal information. We engage vendors with formal written agreements clearly defining the roles of the parties specifying privacy and data security responsibilities.
RISKS RELATED TO OUR LIQUIDITY AND INDEBTEDNESS
If we decided to employ higher leverage levels, we would be subject to increased debt service requirements and a higher risk of default on our debt obligations, which could adversely affect our financial conditions, cash flows and ability to make distributions to our shareholders. In addition, increases or changes in interest rates could cause our borrowing costs to rise and may limit our ability to refinance debt.
Although we have historically used moderate levels of leverage, we have incurred, and expect to continue to incur, indebtedness to support our activities. As of December 31, 2020, our outstanding indebtedness was $1,770.1 million, of which $626.9 million was variable rate indebtedness.
None of our Declaration of Trust, our bylaws or any policy statement formally adopted by our Board limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur. Accordingly, we could become more highly leveraged, resulting in increased debt service requirements and a higher risk of default on our debt obligations. This in turn, could adversely affect our financial condition, cash flows and ability to make distributions to our shareholders.
Although approximately 64.6% of our outstanding debt has fixed or effectively fixed interest rates, we also borrow funds at variable interest rates. Variable rate debt exposes us to changes in interest rates, which could cause our borrowing costs to rise and may limit our ability to refinance debt. Interest expense on our variable rate debt as of December 31, 2020 would increase by approximately $6.3 million annually for a 100-basis-point increase in interest rates. This exposure would increase if we seek additional variable rate financing based on pricing and other commercial and financial terms. We enter into interest rate hedging transactions, including interest rate swap and cap agreements, with counterparties, generally, the same lenders who made the loan in question. There can be no guarantee that the future financial condition of these counterparties will enable them to fulfill their obligations under these agreements.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee ("ARRC"), which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
The Company has contracts indexed to LIBOR and is monitoring and evaluating the risks related to potential discontinuation of LIBOR, including transitioning contracts to a new alternative rate and any resulting value transfer that may occur. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
If a contract is not transitioned to an alternative reference rate and LIBOR is discontinued, the impact on our contracts is likely to vary by contract. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.
While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation changes, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.
The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.
Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for the Company.
Our inability to raise capital for new Funds or to carry out our growth strategy could adversely affect our financial condition, cash flows and results of operations.
Our earnings growth strategy is based on the acquisition and development of additional properties, including acquisitions of core properties through our Operating Partnership and our high return investment programs through our Fund platform. The consummation of any future acquisitions will be subject to satisfactory completion of our extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. We cannot be sure that we will be able to implement our strategy because we may have difficulty finding new properties, obtaining necessary entitlements, negotiating with new or existing tenants or securing acceptable financing.
Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. In the context of our business plan, “development” generally means an expansion or renovation of an existing property. Development is subject to numerous risks, including risks of construction delays, cost overruns or uncontrollable events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and incurring development costs in connection with projects that are not pursued to completion.
Historically, a component of our growth strategy has been through private-equity type investments made through our RCP Venture, which have included investments in operating retailers. The inability of such retailers to operate profitably would have an adverse impact on income realized from these investments. Through our investments in joint ventures we have also invested in operating businesses that have operational risk in addition to the risks associated with real estate investments, including human capital issues, adequate supply of product and material, and merchandising issues.
Furthermore, if we were unable to obtain sufficient investor capital commitments in order to initiate future Funds, this would adversely impact our current growth strategy would be adversely impacted. Because the Operating Partnership is the sole general partner or managing member of our Funds and earns promote distributions or fees for asset management, property management, construction, development, leasing and legal services, such a situation would also adversely impact the amount or ability to earn such promotes or fees.
Our structured financing portfolio is subject to specific risks relating to the structure and terms of the instruments and the underlying collateral.
We invest in notes receivables and preferred equity investments that are collateralized by the underlying real estate, a direct interest or the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. The underlying assets are sometimes subordinate in payment and collateral to more senior loans. The ability of a borrower or entity to make payments on these investments may be subject to the senior lender and/or the performance of the underlying real estate. In the event of a default by the borrower or entity on its senior loan, our investment will only be satisfied after the senior loan and we may not be able to recover the full value of the investment. In the event of a bankruptcy of an entity in which we have a preferred equity interest, or in which the borrower has pledged its interest, the assets of the entity may not be sufficient to satisfy our investment.
RISKS RELATED TO LITIGATION, ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATION
We are exposed to possible liability relating to environmental matters.
Under various Federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, could reduce our revenues and affect our ability to make distributions.
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of our business, and prior to the acquisition of any property from a third party or as required by our financing sources, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. Based upon these environmental reports and our ongoing review of our properties, we are currently not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties or that the following will not expose us to material liability in the future:
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The discovery of previously unknown environmental conditions;
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Changes in law;
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Activities of tenants; and
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Activities relating to properties in the vicinity of our properties.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition, cash flows and results of operations.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition, cash flows and results of operations.
We carry comprehensive general liability, all-risk property, extended coverage, loss of rent insurance, and environmental liability on our properties, with policy specifications and insured limits customarily carried for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we maintain a minimum of twelve months loss of rent insurance. In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition, cash flows and results of operations.
We may from time to time be subject to litigation that could negatively impact our financial condition, cash flows, results of operations and the trading price of our Common Shares.
We may from time to time be a defendant in lawsuits and regulatory proceedings relating to our business. Such litigation and proceedings may result in defense costs, settlements, fines or judgments against us, some of which may not be covered by insurance. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such litigation or proceedings. An unfavorable outcome may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if exceeding insurance coverage, could adversely impact our financial condition, cash flows, results of operations and the trading price of our Common Shares. Additionally, certain proceedings or the resolution of certain proceedings may affect the availability or cost of some of our insurance coverage and expose us to increased risks that would be uninsured. See Item 3 included in this Report and notes to the financial statements of our quarterly reports, for pending litigation, if any.
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unplanned expenditures that could adversely affect our financial condition, cash flows and results of operations.
All of our properties are required to comply with the Americans with Disabilities Act (the “ADA”). The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. While the tenants to whom we lease properties are obligated by law to comply with applicable ADA provisions, and are typically obligated to cover costs of compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected. As a result of the foregoing or if a tenant is not obligated to cover the cost of compliance, we could be required to expend funds to comply with the provisions of the ADA, which could adversely affect our financial condition, cash flows and results of operations. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the properties. We may be required to make substantial capital expenditures to comply with those requirements, and these expenditures could also adversely affect our financial condition, cash flows and results of operations.
RISKS RELATED TO OUR MANAGEMENT AND STRUCTURE
The loss of key management members could have an adverse effect on our business, financial condition and results of operations.
Our success depends on the contribution of key management members. The loss of the services of Kenneth F. Bernstein, President and Chief Executive Officer, or other key executive-level employees could have a material adverse effect on our business, financial condition and results of operations. Management continues to strengthen our team and we have CEO succession planning in place, but there can be no assurance that such planning will be capable of implementation or that our efforts will be successful. We have obtained key-man life insurance for Mr. Bernstein. In addition, we have entered into an employment agreement with Mr. Bernstein and into severance agreements with other senior executives; however, Mr. Bernstein and such executives may terminate their employment with us at will.
We have pursued, and may in the future continue to pursue extensive growth opportunities, including investing in new markets, which may result in significant demands on our operational, administrative and financial resources.
We have pursued and may pursue growth opportunities, some of which have been, and in the future may be, in locations in which we have not historically invested. This expansion places significant demands on our operational, administrative and financial resources. The continued growth of our real estate portfolio can be expected to continue to place a significant strain on our resources. Our future performance will depend in part on our ability to successfully attract and retain qualified management personnel to manage the growth and operations of our business. In addition, the acquired properties may fail to operate at expected levels due to the numerous factors that may affect the value of real estate. There can be no assurance that we will have sufficient resources to identify and manage the newly acquired properties.
Our Board may change our investment policy or objectives without shareholder approval.
Our Board may determine to change our investment and financing policies or objectives, our growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies. Our Board may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. Although our Board has no present intention to revise or amend our strategies and policies, it may do so at any time without a vote by our shareholders. Accordingly, the results of decisions made by our Board as implemented by management may or may not serve the interests of all of our shareholders and could adversely affect our financial condition, cash flows, results of operations, and ability to satisfy our debt service obligations and to make distributions to our shareholders.
Concentration of ownership by certain investors.
As of December 31, 2020, four institutional shareholders own 5% or more individually, and 43.8% in the aggregate, of our Common Shares. While this ownership concentration does not jeopardize our qualification as a REIT (due to certain “look-through provisions”), a significant concentration of ownership may allow an investor or a group of investors to exert a greater influence over our management and affairs and may have the effect of delaying, deferring or preventing a change in control of us.
Restrictions on a potential change of control could prevent changes that would be beneficial to our shareholders.
Our Board is authorized by our Declaration of Trust to establish and issue one or more series of preferred shares of beneficial interest without shareholder approval. We have not established any series of preferred shares other than the Series A and Series C Preferred OP Units in the Operating Partnership. However, the establishment and issuance of a class or series of preferred shares could make a change of control of us that could be in the best interests of the shareholders more difficult. In addition, we have entered into an employment agreement with our Chief Executive Officer and severance agreements with certain of our executives, which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), such executive officers would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of annual salary and prior years' average bonuses, paid in accordance with the terms and conditions of the respective agreement), which could deter a change of control of us that could be in the best interests of our shareholders generally.
Certain provisions of Maryland law may limit the ability of a third party to acquire control of our Company.
Under the provisions of the Maryland General Corporation Law (the “MGCL”) applicable to REITs, certain business combinations, including certain mergers, consolidations, share exchanges and asset transfers and certain issuances and reclassifications of equity securities, between a Maryland REIT and any person who beneficially owns 10% or more of the voting power of the REIT's outstanding voting shares or an affiliate or an associate, as defined in the MGCL, of the REIT who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding shares of beneficial interest of the REIT (an “interested shareholder”) or an affiliate of the interested shareholder, are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. After that five-year period, any such business combination must be recommended by the Board of the REIT and approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the REIT and (ii) two-thirds of the votes entitled to be cast by holders of voting shares of the REIT other than shares held by the interested shareholder with whom, or with whose affiliate, the business combination is to be effected or held by an affiliate or associate of the interested shareholder, unless, among other conditions, the REIT's common shareholders receive a minimum price, as defined in the MGCL, for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its common shares.
These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of the REIT before the interested shareholder becomes an interested shareholder, and a person is not an interested shareholder if the board of trustees approved in advance the transaction by which the person otherwise would have become an interested shareholder. In approving a transaction, our Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board. We have not elected to opt out of the business combination statute.
The MGCL also provides that holders of “control shares” of a Maryland REIT (defined as voting shares that, when aggregated with all other shares owned by the acquirer or in respect of which the acquirer is entitled to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by the affirmative vote of holders of at least two-thirds of all the votes entitled to be cast on the matter, excluding shares owned by the acquirer, by officers or by employees who are also trustees of the REIT. Our Bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our shares of beneficial interest. Our Bylaws can be amended by our Board by majority vote, and there can be no assurance that this provision will not be amended or eliminated at any time in the future.
Additionally, Title 3, Subtitle 8 of the MGCL permits our Board, without shareholder approval and regardless of what is currently provided in our Declaration of Trust or Bylaws, to elect to be subject to certain provisions relating to corporate governance that may have the effect of delaying, deferring or preventing a transaction or a change of control of our Company that might involve a premium to the market price of our Common Shares or otherwise be in the best interests of our shareholders. We are subject to some of these provisions (for example, a two-thirds vote requirement for removing a trustee) by provisions of our Declaration of Trust and Bylaws unrelated to Subtitle 8. However, pursuant to the Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland on November 9, 2017, which are referenced in Part IV Item 15 hereto, the Board approved a resolution to opt out of Section 3-803 of Subtitle 8 of Title 3 of the MGCL that allows the Board, without shareholder approval, to elect to classify into three classes with staggered three-year terms. The Articles Supplementary prohibit the Company, without the affirmative vote of a majority of the votes cast on the matter by shareholders entitled to vote generally in the election of trustees, from classifying the Board under Subtitle 8.
Becoming subject to, or the potential to become subject to, these provisions of the MGCL could inhibit, delay or prevent a transaction or a change of control of our Company that might involve a premium price for our shareholders or otherwise be in our or their best interests. In addition, the provisions of our Declaration of Trust on removal of trustees and the provisions of our Bylaws regarding advance notice of shareholder nominations of trustees and other business proposals and restricting shareholder action outside of a shareholders meeting unless such action is taken by unanimous written consent could have a similar effect.
Our rights and shareholders' rights to take action against trustees and officers are limited, which could limit recourse in the event of actions not in the best interests of shareholders.
As permitted by Maryland law, our Declaration of Trust eliminates the liability of our trustees and officers to the Company and its shareholders for money damages, except for liability resulting from:
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actual receipt of an improper benefit or profit in money, property or services; or
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a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated.
In addition, our Declaration of Trust authorizes, and our Bylaws obligate, us to indemnify each present or former trustee or officer, to the maximum extent permitted by Maryland law, who is made a party to any proceeding because of his or her service to our Company in those or certain other capacities. As part of these indemnification obligations, we may be obligated to fund the defense costs incurred by our trustees and officers.
We operate through a partnership structure, which could have an adverse effect on our ability to manage our assets.
Our primary property-owning vehicle is the Operating Partnership, of which we are the general partner. Our acquisition of properties through the Operating Partnership in exchange for interests in the Operating Partnership may permit certain tax deferral advantages to limited partners who contribute properties to the Operating Partnership. Since properties contributed to the Operating Partnership may have unrealized gains attributable to the differences between the fair market value and adjusted tax basis in such properties prior to contribution, the sale of such properties could cause adverse tax consequences to the limited partners who contributed such properties. Although we, as the general partner of the Operating Partnership, generally have no obligation to consider the tax consequences of our actions to any limited partner, we own several properties subject to material contractual restrictions for varying periods of time designed to minimize the adverse tax consequences to the limited partners who contributed such properties. Such restrictions may result in significantly reduced flexibility to manage some of our assets.
We currently have an exclusive obligation to seek investments for our Funds, which may prevent us from making acquisitions directly.
Under the terms of the organizational documents of our Funds, our primary goal is to seek investments for the Funds, subject to certain exceptions. We may only pursue opportunities to acquire retail properties directly through the Operating Partnership if (i) the ownership of the acquisition opportunity by the Funds would create a material conflict of interest for us; (ii) we require the acquisition opportunity for a “like-kind” exchange; (iii) the consideration payable for the acquisition opportunity is our Common Shares, OP Units or other securities or (iv) the investment is outside the parameters of our investment goals for the Funds (which, in general, seek more opportunistic level returns). As a result, we may not be able to make attractive acquisitions directly and instead may only receive a minority interest in such acquisitions through the Funds.
Our joint venture investments carry additional risks not present in our direct investments
Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our partner or co-venturer might become bankrupt, and that our partner or co-venturer may take action contrary to our instructions, requests, policies or objectives, including with respect to maintaining our qualification as a REIT. Actions by, or disputes with, joint venture partners might result in subjecting properties owned by the joint venture to additional risks. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor a joint venture partner may have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of our funds that may be invested in joint ventures.
Additionally, our partners or co-venturers may engage in malfeasance in spite of our efforts to perform a high level of due diligence on them, which may jeopardize an investment and/or subject us to reputational risk. Such acts may or may not be covered by insurance.
Any disputes that may arise between joint venture partners and us may result in potentially costly litigation or arbitration that would prevent our officers and/or trustees from focusing their time and effort on our business. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners.
RISKS RELATED TO OUR REIT STATUS
There can be no assurance we have qualified or will remain qualified as a REIT for Federal income tax purposes.
We believe that we have consistently met the requirements for qualification as a REIT for Federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code, for which there may be only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Internal Revenue Code provisions and income tax regulations applicable to REITs differ significantly from those applicable to other entities. The determination of various factual matters and circumstances not entirely within our control can potentially affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that future legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or adversely affect the Federal income tax consequences of such qualification. Under current law, if we fail to qualify as a REIT, we would not be allowed a deduction for dividends paid to shareholders in computing our net taxable income. In addition, our income would be subject to tax at the regular corporate rates. Also, we could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of our shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
Legislative or regulatory tax changes could have an adverse effect on us.
There are a number of issues associated with an investment in a REIT that are related to the Federal income tax laws, including, but not limited to, the consequences of our failing to continue to qualify as a REIT. At any time, the Federal income tax laws governing REITs or the administrative interpretations of those laws may be amended or modified. Any new laws or interpretations may take effect retroactively and could adversely affect us or our shareholders.
On December 22, 2017, Pub. L. No. 115-97 (informally known as the Tax Cuts and Jobs Act (the “Act”)) was enacted into law. The Act made major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their shareholders. The long-term effect of the significant changes made by the Act remains uncertain, and additional administrative guidance will be required in order to fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the Act could have an adverse effect on use or our shareholders or holders of our debt securities.
We may be required to borrow funds or sell assets to satisfy our REIT distribution requirements.
Our cash flows may be insufficient to fund distributions required to maintain our qualification as a REIT as a result of differences in timing between the actual receipt of income and the recognition of income for U.S. Federal income tax purposes, or as a result of our inability to currently deduct certain expenditures that we must currently pay, such as capital expenditures, payments of compensation for which Section 162(m) of the Code denies a deduction, any business interest expense that is disallowed under Section 163 (j) of the Code (unless we elect to be an “electing real property trade or business”), and the creation of reserves or required amortization payments. If we do not have other funds available in these situations, we may need to borrow funds on a short-term basis or sell assets, even if the then- prevailing market conditions are not favorable for these borrowings or sales, in order to satisfy our REIT distribution requirements. Such actions could adversely affect our cash flow and results of operations.
Dividends payable by REITs generally do not qualify for reduced tax rates.
Certain qualified dividends paid by corporations to individuals, trusts and estates that are U.S. shareholders are taxed at capital gain rates, which are lower than ordinary income rates. Dividends of current and accumulated earnings and profits payable by REITs, however, are taxed at ordinary income rates as opposed to the capital gain rates. Pursuant to the Act, from 2018 through 2025, certain REIT shareholders will be permitted to deduct 20% of ordinary REIT dividends received. Dividends payable by REITs in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof and thereafter as taxable gain. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs, including us, to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which may negatively impact the trading prices of our securities.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and the ownership of our Common Shares. In order to meet these tests, we may be required to forego investments we might otherwise make and refrain from engaging in certain activities. Thus, compliance with the REIT requirements may hinder our performance.
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments.
We have limits on ownership of our shares of beneficial interest.
For us to qualify as a REIT for Federal income tax purposes, among other requirements, not more than 50% of the value of our shares of beneficial interest may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) at any time during the last half of each taxable year, and such shares of beneficial interest must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year). Our Declaration of Trust includes certain restrictions regarding transfers of our shares of beneficial interest and ownership limits that are intended to assist us in satisfying these limitations, among other purposes. These restrictions and limits may not be adequate in all cases, however, to prevent the transfer of our shares of beneficial interest in violation of the ownership limitations. The ownership limits contained in our Declaration of Trust may have the effect of delaying, deferring or preventing a change of control of us.
Actual or constructive ownership of our shares of beneficial interest in excess of the share ownership limits contained in our Declaration of Trust would cause the violative transfer or ownership to be null and void from the beginning and subject to purchase by us at a price equal to the fair market value of such shares (determined in accordance with the rules set forth in our Declaration of Trust). As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.
Distribution requirements imposed by law limit our operating flexibility.
To maintain our status as a REIT for Federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for each calendar year. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to Federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year; (ii) 95% of our capital gain net income for that year; and (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Internal Revenue Code and to minimize exposure to Federal income and excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our income as well as required debt amortization payments and the capitalization of certain expenses could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. The distribution requirements also severely limit our ability to retain earnings to acquire and improve properties or retire outstanding debt.
GENERAL RISK FACTORS
The economic environment may cause us to lose tenants and may impair our ability to borrow money to purchase properties, refinance existing debt or finance our current development projects.
Our operations and performance depend on general economic conditions, including consumer health. The U.S. economy has historically experienced financial downturns from time to time, including a decline in consumer spending, credit tightening and high unemployment.
While we currently believe we have adequate sources of liquidity, there can be no assurance that, in the event of a financial downturn, we will be able to obtain secured or unsecured loan facilities to meet our needs, including to purchase additional properties, to complete current development projects, or to successfully refinance our properties as loans become due. To the extent that the availability of credit is limited, it would also adversely impact our notes receivable as counterparties may not be able to obtain the financing required to repay the loans upon maturity.
Certain sectors of the U. S. economy are still experiencing weakness. Over the past several years, this structural weakness has resulted in periods of high unemployment, the bankruptcy or weakened financial condition of a number of retailers, decreased consumer spending, increased home foreclosures, low consumer confidence, and reduced demand and rental rates for certain retail space. There can be no assurance that the recovery will continue. General economic factors that are beyond our control, including, but not limited to, economic recessions, decreases in consumer confidence, reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, higher tax rates, continued business layoffs, downsizing and industry slowdowns, and/or rising inflation, could have a negative impact on the business of our retail tenants. In turn, this could have a material adverse effect on our business because current or prospective tenants may, among other things, (i) have difficulty paying their rent obligations as they struggle to sell goods and services to consumers, (ii) be unwilling to enter into or
renew leases with us on favorable terms or at all, (iii) seek to terminate their existing leases with us or request rental concessions on such leases, or (iv) be forced to curtail operations or declare bankruptcy.
Political and economic uncertainty could have an adverse effect on our business.
We cannot predict how current political and economic uncertainty will affect our critical tenants, joint venture partners, lenders, financial institutions and general economic conditions, including the health and confidence of the consumer and the volatility of the stock market.
Political and economic uncertainty poses a risk to us in that it may cause consumers to postpone discretionary spending in response to tighter credit, reduced consumer confidence and other macroeconomic factors affecting consumer spending behavior, resulting in a downturn in the business of our tenants. In the event current political and economic uncertainty results in financial turmoil affecting the banking system and financial markets generally or significant financial service institution failures, there could be a new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed income, credit, currency and equity markets. Each of these factors could adversely affect our financial condition, cash flows and results of operations.
Inflation may adversely affect our financial condition, cash flows and results of operations.
Increased inflation could have a more pronounced negative impact on our mortgage and debt interest and general and administrative expenses, as these costs could increase at a rate higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases or limits on such tenant’s obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time. It may also limit our ability to recover all of our operating expenses. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our average rents, and in some cases, our percentage rents, where applicable. In addition, renewals of leases or future leases may not be negotiated on current terms, in which event we may recover a smaller percentage of our operating expenses.
Competition may adversely affect our ability to purchase properties and to attract and retain tenants.
There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Our competitors include other REITs, financial institutions, private funds, insurance companies, pension funds, private companies, family offices, sovereign wealth funds and individuals. This competition may result in a higher cost for properties than we wish to pay. In addition, retailers at our properties (both in our Core Portfolio and in the portfolios of the Funds) face increasing competition from outlet malls, discount shopping clubs, e-commerce, direct mail and telemarketing, which could (i) reduce rents payable to us and (ii) reduce our ability to attract and retain tenants at our properties leading to increased vacancy rates at our properties.
Market factors could have an adverse effect on our share price and our ability to access the public equity markets.
The market price of our Common Shares may fluctuate significantly in response to many factors, including:
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actual or anticipated variations in our operating results, funds from operations, cash flows or liquidity;
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changes in our earnings estimates or those of analysts;
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changes in our dividend policy;
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impairment charges affecting the carrying value of one or more of our Properties or other assets;
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publication of research reports about us, the retail industry or the real estate industry generally;
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increases in market interest rates that lead purchasers of our securities to seek higher dividend or interest rate yields;
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changes in market valuations of similar companies;
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adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt in the near and medium term and our ability to refinance such debt and the terms thereof or our plans to incur additional debt in the future;
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additions or departures of key management personnel;
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actions by institutional security holders;
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proposed or adopted regulatory or legislative changes or developments;
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speculation in the press or investment community;
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the occurrence of any of the other risk factors included in, or incorporated by reference in, this report; and
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general market and economic conditions.
Many of the factors listed above are beyond our control. Those factors may cause the market price of our Common Shares to decline significantly, regardless of our financial performance, condition and prospects. We may not provide any assurance that the market price of our Common Shares will not fall in the future, and it may be difficult for holders to sell such securities at prices they find attractive, or at all. A
decline in our share price, as a result of this or other market factors, could unfavorably impact our ability to raise additional equity in the public markets.
Outages, computer viruses and similar events could disrupt our operations.
We rely on information technology networks and systems, some of which are owned and operated by third parties, to process, transmit and store electronic information. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist or cyber-attacks and similar events. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses and similar disruptions. If we or the third parties on whom we rely are unable to prevent such outages and breaches, our operations could be disrupted.
Increased Information Technology (“IT”) security threats and more sophisticated computer crime could pose a risk to our systems, networks and services.
Cyber incidents can result from deliberate attacks or unintentional events. There have been an increased number of significant cyber-attacks targeted at the retail, insurance, financial and banking industries that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as by causing denial-of-service attacks on websites. Cyber-attacks by third parties or insiders utilize techniques that range from highly sophisticated efforts to electronically circumvent network security or overwhelm a website to more traditional intelligence gathering and social engineering aimed at obtaining information necessary to gain access.
Increased global IT security threats are more sophisticated and targeted computer crimes pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. The open nature of interconnected technologies may allow for a network or Web outage or a privacy breach that reveals sensitive data or transmission of harmful/malicious code to business partners and clients. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures.
Cyber-attacks may result in substantial financial and reputational cost, including but are not limited to:
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Compromising of confidential information;
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Manipulation and destruction of data;
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Loss of trade secrets;
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System downtimes and operational disruptions;
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Remediation costs that may include liability for stolen assets or information and repairing system damage, as well as incentives offered to customers, tenants or other business partners in an effort to maintain the business relationships;
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Loss of revenues resulting from unauthorized use of proprietary information;
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Cost to deploy additional protection strategies, training employees and engaging third party experts and consultants;
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Reputational damage adversely affecting investor and tenant confidence; and
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Costly litigation.
While we attempt to mitigate these risks by employing a number of measures, including a dedicated IT team, employee training and background checks, maintenance of backup systems, utilization of third-party service providers to provide redundancy over multiple locations, and comprehensive monitoring of our networks and systems along with purchasing cyber security insurance coverage, our systems, networks and services remain potentially vulnerable to advanced threats.
Use of social media may adversely impact our reputation and business.
There has been a significant increase in the use of social media platforms, including weblogs, social media websites and other forms of Internet-based communications, which allow individuals access to a broad audience, including our significant business constituents. The availability of information through these platforms is virtually immediate as is its impact and may be posted at any time without affording us an opportunity to redress or correct it timely. This information may be adverse to our interests, may be inaccurate and may harm our reputation, brand image, goodwill, performance, prospects or business. Furthermore, these platforms increase the risk of unauthorized disclosure of material non-public Company information.
Climate change, natural disasters or health crises could adversely affect our properties and business.
Some of our current or future properties could be subject to natural disasters and may be impacted by climate change. To the extent climate change causes adverse changes in weather patterns, rising sea levels or extreme temperatures, our properties in certain markets may be
adversely affected. Specifically, properties located in coastal regions could be affected by any future increases in sea levels or in the frequency or severity of hurricanes and storms, whether caused by climate change or other factors. Additionally, we own properties in Southern California, which in recent years has experienced intense draught and wildfires and has had earthquake activity.
Climate change could have a variety of direct or indirect adverse effects on our properties and business, including:
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Property damage to our retail properties;
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Indirect financial and operational impacts from disruptions to the operations of major tenants located in our retail properties from severe weather, such as hurricanes, floods, wildfires or other natural disasters;
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Increased insurance premiums and deductibles, or a decrease in or unavailability of coverage, for properties in areas subject to severe weather, such as hurricanes, floods, wildfires or other natural disasters;
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Increased insurance claims and liabilities;
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Increases in energy costs impacting operational returns;
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Changes in the availability or quality of water or other natural resources on which the tenant's business depends;
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Decreased consumer demand for products or services resulting from physical changes associated with climate change (e.g., warmer temperatures or decreasing shoreline could reduce demand for residential and commercial properties previously viewed as desirable);
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Incorrect long-term valuation of an equity investment due to changing conditions not previously anticipated at the time of the investment; and
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Economic disruptions arising from the above.
Moreover, compliance with new laws or regulations related to climate change, including compliance with “green” building codes, may require us to make improvements to our existing properties or pay additional taxes and fees assessed on us or our properties. Although we strive to identify, analyze, and respond to the risk and opportunities that climate change presents, at this time there can be no assurance that climate change will have an adverse effect on us.
Public health crises, pandemics and epidemics, such as those caused by new strains of viruses such as H5N1 (avian flu), severe acute respiratory syndrome (SARS) and, most recently, the novel coronavirus (COVID-19), are expected to increase as international travel continues to rise and could adversely impact our business by interrupting our tenants’ business, supply chains and transactional activities, disrupting travel, and negatively impacting local, national or global economies.
Future terrorist attacks or civil unrest could harm the demand for, and the value of, our properties.
Over the past several years, a number of highly publicized terrorist acts and shootings have occurred at domestic and international retail properties. Future terrorist attacks, civil unrest and other acts of terrorism or war could harm the demand for, and the value of, our properties. Terrorist attacks could directly impact the value of our properties through damage, destruction, loss or increased security costs, and the availability of insurance for such acts may be limited or may be subject to substantial cost increases. To the extent that our tenants are impacted by future attacks, their ability to continue to honor obligations under their existing leases could be adversely affected. A decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. These acts might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our properties, and limit our access to capital or increase our cost of raising capital.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.

---

ITEM 2. PROPERTIES
ITEM 2.
PROPERTIES.
Retail Properties
The discussion and tables in this Item 2. include wholly-owned and partially-owned properties held through our Core Portfolio and our Funds. We define our Core Portfolio as those properties either 100% owned by, or partially owned through joint venture interests by the Operating Partnership or subsidiaries thereof, not including those properties owned through our Funds.
As of December 31, 2020, there are 126 operating properties in our Core Portfolio totaling approximately 5.6 million square feet of gross leasable area (“GLA”) excluding four properties under redevelopment and one property in development. The Core Portfolio properties are located in 12 states and the District of Columbia and primarily consist of street retail and dense suburban shopping centers. These properties are diverse in size, ranging from approximately 1,000 to 800,000 square feet and as of December 31, 2020, were in total, excluding the properties that were pre-stabilized or under redevelopment, 89.0% occupied.
As of December 31, 2020, we owned and operated 52 properties totaling approximately 7.3 million square feet of GLA in our Funds, excluding four properties under development. In addition to shopping centers, the Funds have invested in mixed-use properties, which generally include retail activities. The Fund properties are located in 17 states and the District of Columbia and, as of December 31, 2020, were in total, excluding the properties under development, 85.1% occupied.
Within our Core Portfolio and Funds, we had approximately 1,100 retail leases as of December 31, 2020. A significant portion of our rental revenues were from national retailers and consist of rents received under long-term leases. These leases generally provide for the monthly payment of fixed minimum rent and the tenants' pro-rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping centers. An insignificant portion of our leases also provide for the payment of rent based on a percentage of a tenant's gross sales in excess of a stipulated annual amount, either in addition to, or in place of, minimum rents. Minimum rents and expense reimbursements accounted for substantially all of our total revenues for the year ended December 31, 2020.
Six of our Core Portfolio properties and three of our Fund properties are subject to long-term ground leases in which a third party owns and has leased the underlying land to us. We pay rent for the use of the land and are responsible for all costs and expenses associated with the building and improvements at all of these locations.
No individual property or tenant contributed in excess of 10% of our total revenues for the years ended December 31, 2020, 2019 or 2018. See Note 7 in the Notes to Consolidated Financial Statements, for information on the mortgage debt pertaining to our properties.
The following table sets forth more specific information with respect to each of our Core properties at December 31, 2020:
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross Leasable
Area (GLA)
In Place
Occupancy
Leased
Occupancy
Annualized Base
Rent (ABR)
ABR/ Per
Square Foot
STREET AND URBAN RETAIL
Chicago Metro
664 N. Michigan Avenue
Tommy Bahama,
Ann Taylor Loft
100.0
%
18,141
100.0
%
100.0
%
$
3,558,848
$
196.18
840 N. Michigan Avenue
H & M, Verizon
Wireless
88.4
%
87,135
100.0
%
100.0
%
8,381,048
96.18
Rush and Walton Streets
Collection (6 properties)
Lululemon, BHLDN,
Reformation,
Sprinkles
100.0
%
40,384
81.0
%
81.0
%
5,674,095
173.43
651-671 West Diversey
Trader Joe's,
Urban Outfitters
100.0
%
46,259
100.0
%
100.0
%
2,051,814
44.35
Clark Street and W. Diversey
Collection (4 properties)
Starbucks
100.0
%
53,309
53.2
%
53.2
%
1,214,057
42.79
Halsted and Armitage
Collection (13 properties)
Serena and Lily,
Bonobos, Allbirds
Warby Parker,
Marine Layer,
Kiehl's
100.0
%
52,804
100.0
%
100.0
%
2,467,088
46.72
North Lincoln Park Chicago
Collection (6 properties)
Champion,
Carhartt
100.0
%
49,921
46.8
%
46.8
%
870,271
37.24
State and Washington
Nordstrom Rack,
Uniqlo
100.0
%
78,771
100.0
%
100.0
%
3,327,875
42.25
151 N. State Street
Walgreens
100.0
%
27,385
100.0
%
100.0
%
1,430,000
52.22
North and Kingsbury
Old Navy
100.0
%
41,700
69.0
%
69.0
%
1,145,821
39.81
Concord and Milwaukee
-
100.0
%
13,105
100.0
%
100.0
%
430,235
32.83
California and Armitage
-
100.0
%
18,275
70.6
%
70.6
%
668,622
51.86
Roosevelt Galleria
Petco, Vitamin
Shoppe
100.0
%
37,995
47.7
%
47.7
%
608,958
33.59
Sullivan Center
Target, DSW
100.0
%
176,181
95.4
%
95.4
%
6,355,644
37.83
741,365
85.8
%
87.1
%
$
38,184,376
$
60.05
New York Metro
Soho Collection
(11 properties)
Paper Source,
Faherty, ALC
Stone Island, Taft,
Frame, Theory
100.0
%
36,769
90.8
%
90.8
%
8,982,663
268.99
5-7 East 17th Street
-
100.0
%
11,467
0.0
%
0.0
%
-
-
200 West 54th Street
-
100.0
%
5,777
48.0
%
48.0
%
1,188,283
428.36
61 Main Street
-
100.0
%
3,470
100.0
%
100.0
%
-
-
181 Main Street
TD Bank
100.0
%
11,350
67.0
%
67.0
%
800,000
105.26
4401 White Plains Road
Walgreens
100.0
%
12,964
100.0
%
100.0
%
625,000
48.21
Bartow Avenue
-
100.0
%
14,590
80.0
%
80.0
%
364,560
31.22
239 Greenwich Avenue
Betteridge Jewelers
75.0
%
16,553
100.0
%
100.0
%
1,690,359
102.12
252-256 Greenwich Avenue
Madewell,
Blue Mercury
100.0
%
7,986
100.0
%
100.0
%
950,500
119.02
2914 Third Avenue
Planet Fitness
100.0
%
40,320
74.4
%
74.4
%
768,172
25.60
868 Broadway
Dr. Martens
100.0
%
2,031
100.0
%
100.0
%
814,426
401.00
313-315 Bowery (b)
John Varvatos,
Patagonia
100.0
%
6,600
100.0
%
100.0
%
479,160
72.60
120 West Broadway
HSBC Bank
100.0
%
13,838
79.8
%
79.8
%
2,006,561
181.78
2520 Flatbush Avenue
Bob's Disc. Furniture,
Capital One
100.0
%
29,114
100.0
%
100.0
%
1,169,540
40.17
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross Leasable
Area (GLA)
In Place
Occupancy
Leased
Occupancy
Annualized Base
Rent (ABR)
ABR/ Per
Square Foot
991 Madison Avenue
Vera Wang,
Gabriella Hearst
100.0
%
7,513
91.1
%
91.1
%
2,834,853
414.01
Shops at Grand
Stop & Shop (Ahold)
100.0
%
99,685
100.0
%
100.0
%
3,341,645
33.52
Gotham Plaza
Bank of America,
Footlocker
49.0
%
25,927
50.2
%
58.3
%
856,195
65.85
345,954
85.2
%
85.8
%
26,871,917
91.17
San Francisco Metro
555 9th Street
Bed, Bath &
Beyond,
Nordstrom Rack
100.0
%
148,832
100.0
%
100.0
%
6,293,465
42.29
148,832
100.0
%
100.0
%
6,293,465
42.29
Los Angeles Metro
Melrose Place Collection
The Row, Chloe,
Oscar de la Renta
100.0
%
14,000
100.0
%
100.0
%
2,455,933
175.42
14,000
100.0
%
100.0
%
2,455,933
175.42
District of Columbia Metro
1739-53 & 1801-03
Connecticut Avenue
TD Bank
100.0
%
20,669
65.0
%
65.0
%
874,531
65.12
Rhode Island Place
Shopping Center
Ross Dress for Less
100.0
%
57,667
89.1
%
93.4
%
1,617,822
31.48
M Street and Wisconsin Corridor
(26 Properties) (c)
Lululemon, Rent the
Runway,CB2,
The Reformation
25.2
%
244,259
74.5
%
74.5
%
13,195,611
72.55
322,595
76.5
%
77.2
%
15,687,964
63.59
Boston Metro
330-340 River Street
Whole Foods
100.0
%
54,226
100.0
%
100.0
%
1,243,517
22.93
165 Newbury Street
Starbucks
100.0
%
1,050
100.0
%
100.0
%
286,051
272.43
55,276
100.0
%
100.0
%
1,529,568
27.67
Total Street and Urban Retail
1,628,022
85.7
%
86.6
%
$
91,023,223
$
65.23
Acadia Share Total Street and Urban Retail
1,414,229
87.4
%
88.3
%
$
79,643,219
$
64.46
SUBURBAN PROPERTIES
New Jersey
Marketplace of Absecon
Walgreens, Dollar Tree
100.0
%
104,556
86.2
%
86.2
%
1,346,391
14.94
60 Orange Street (d)
Home Depot
98.0
%
101,715
100.0
%
100.0
%
730,000
7.18
New York
Village Commons
Shopping Center
-
100.0
%
87,128
96.1
%
96.1
%
2,791,713
33.33
Branch Plaza
LA Fitness,
The Fresh Market
100.0
%
123,345
94.2
%
98.8
%
3,252,007
27.99
Amboy Center
Stop & Shop (Ahold)
100.0
%
63,290
86.1
%
86.1
%
1,842,043
33.82
LA Fitness
LA Fitness
100.0
%
55,000
100.0
%
100.0
%
1,485,287
27.01
Crossroads Shopping Center
HomeGoods,Pet-
Smart, Kmart
49.0
%
311,904
77.4
%
86.5
%
5,816,454
24.09
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross Leasable
Area (GLA)
In Place
Occupancy
Leased
Occupancy
Annualized Base
Rent (ABR)
ABR/ Per
Square Foot
New Loudon Center
Price Chopper,
Marshalls
100.0
%
255,673
91.6
%
95.1
%
1,911,563
8.16
28 Jericho Turnpike
Kohl's
100.0
%
96,363
100.0
%
100.0
%
1,815,000
18.84
Bedford Green
Shop Rite, CVS
100.0
%
90,589
78.2
%
78.2
%
2,311,305
32.63
Connecticut
Town Line Plaza (e)
Wal-Mart, Stop
& Shop (Ahold)
100.0
%
206,089
100.0
%
100.0
%
1,876,846
17.25
Massachusetts
Methuen Shopping Center
Wal-Mart,
Market Basket
100.0
%
130,021
100.0
%
100.0
%
1,406,392
10.82
Crescent Plaza
Home Depot, Shaw's
(Supervalu)
100.0
%
218,148
96.0
%
96.0
%
1,958,088
9.35
201 Needham Street
Michael's
100.0
%
20,409
100.0
%
100.0
%
646,965
31.70
163 Highland Avenue
Staples, Petco
100.0
%
40,505
100.0
%
100.0
%
1,490,575
36.80
Vermont
The Gateway Shopping Center
Shaw's (Supervalu)
100.0
%
101,474
100.0
%
100.0
%
2,212,261
21.80
Illinois
Hobson West Plaza
Garden Fresh
Markets
100.0
%
98,962
96.2
%
97.8
%
1,157,620
12.16
Indiana
Merrillville Plaza
Jo-Ann Fabrics,
TJ Maxx
100.0
%
236,002
51.0
%
55.4
%
1,865,110
15.49
Michigan
Bloomfield Town Square
Best Buy,
HomeGoods,
TJ Maxx
100.0
%
235,022
89.8
%
89.8
%
3,546,933
16.80
Delaware
Town Center and Other
(2 properties)
Lowes, Bed Bath &
Beyond, Target
100.0
%
800,018
91.3
%
91.3
%
12,725,291
17.43
Market Square Shopping Center
Trader Joe's,
TJ Maxx
100.0
%
102,047
97.4
%
97.4
%
3,102,866
31.22
Naamans Road
-
100.0
%
19,850
30.1
%
30.1
%
433,785
72.60
Pennsylvania
Mark Plaza
Kmart
100.0
%
106,856
100.0
%
100.0
%
244,279
2.29
Plaza 422
Home Depot
100.0
%
156,279
100.0
%
100.0
%
894,880
5.73
Chestnut Hill
-
100.0
%
37,646
86.3
%
86.3
%
813,942
25.05
Abington Towne Center (f)
Target, TJ Maxx
100.0
%
216,871
100.0
%
100.0
%
1,234,473
20.83
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross Leasable
Area (GLA)
In Place
Occupancy
Leased
Occupancy
Annualized Base
Rent (ABR)
ABR/ Per
Square Foot
Total Suburban Properties
4,015,762
90.3
%
91.7
%
$
58,912,069
$
17.35
Acadia Share Total Suburban Properties
3,854,657
90.8
%
91.9
%
$
55,931,077
$
17.10
Total Core Properties
5,643,784
89.0
%
90.2
%
$
149,935,292
$
31.27
Acadia Share Total Core Properties
5,272,454
89.9
%
90.9
%
$
135,574,296
$
30.05
(a)
Excludes properties under development or redevelopment, see “Development and Redevelopment Activities” section below. The above occupancy and rent amounts do not include space which is currently leased, other than “leased occupancy,” but for which rent payment has not yet commenced. Residential and office GLA are excluded.
(b)
Represents the annual base rent paid to Acadia pursuant to a master lessee and does not reflect the rent paid by the retail tenants at the property.
(c)
Excludes 94,000 square feet of office GLA.
(d)
Sold in 2021
(e)
Anchor GLA includes a 97,300 square foot Wal-Mart store which is not owned by the Company. This square footage has been excluded for calculating annualized base rent per square foot.
(f)
Anchor GLA includes a 157,616 square foot Target store which is not owned by the Company. This square footage has been excluded for calculating annualized base rent per square foot.
The following table sets forth more specific information with respect to each of our Fund properties at December 31, 2020:
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross Leasable
Area (GLA)
In Place
Occupancy
Leased
Occupancy
Annualized Base
Rent (ABR)
ABR/Per
Square Foot
Fund II Portfolio Detail
New York
City Point - Phase I and II
Target, Alamo Drafthouse
26.7
%
469,518
42.5
%
65.2
%
$
5,377,929
$
26.95
Total - Fund II
469,518
42.5
%
65.2
%
$
5,377,929
$
26.95
Fund III Portfolio Detail
New York
654 Broadway
─
24.5
%
2,896
100.0
%
100.0
%
$
455,000
$
157.11
640 Broadway
Swatch
15.5
%
4,637
100.0
%
100.0
%
1,154,857
249.05
Cortlandt Crossing
ShopRite, HomeSense
24.5
%
127,849
81.1
%
81.1
%
2,902,195
27.97
Total - Fund III
135,382
82.2
%
82.2
%
$
4,512,052
$
40.55
Fund IV Portfolio Detail
New York
801 Madison Avenue
─
23.1
%
2,522
-
%
-
%
$
-
$
-
210 Bowery
─
23.1
%
2,538
-
%
-
%
-
-
27 East 61st Street
─
23.1
%
4,177
-
%
-
%
-
-
17 East 71st Street
The Row
23.1
%
8,432
100.0
%
100.0
%
2,026,754
240.36
1035 Third Avenue (b)
─
23.1
%
7,634
58.5
%
80.4
%
1,052,474
235.51
New Jersey
Paramus Plaza
Ashley Furniture, Marshalls
11.6
%
153,494
59.3
%
100.0
%
2,104,536
23.13
Massachusetts
Restaurants at Fort Point
─
23.1
%
15,711
100.0
%
100.0
%
1,009,945
64.28
Maine
Airport Mall
Hannaford, Marshalls
23.1
%
222,100
86.6
%
86.6
%
1,277,283
6.64
Wells Plaza
Reny's, Dollar Tree
23.1
%
90,434
98.3
%
98.3
%
742,942
8.35
Shaw's Plaza (Waterville)
Shaw's
23.1
%
119,015
96.6
%
96.6
%
1,316,813
11.45
Shaw's Plaza (Windham)
Shaw's
23.1
%
124,171
86.5
%
86.5
%
951,866
8.87
Pennsylvania
Dauphin Plaza
Price Rite, Ashley Furniture
23.1
%
206,206
91.9
%
91.9
%
1,893,815
10.00
Mayfair Shopping Center
Planet Fitness, Dollar Tree
23.1
%
115,411
96.3
%
96.3
%
1,908,927
17.17
Rhode Island
650 Bald Hill Road
Dick's Sporting Goods,
Burlington Coat Factory
20.8
%
160,448
85.4
%
85.4
%
2,025,172
14.79
Virginia
Promenade at Manassas
Home Depot
22.8
%
280,760
98.6
%
98.6
%
3,630,599
13.11
Delaware
Eden Square
Giant Food, LA Fitness
22.8
%
229,840
89.7
%
89.7
%
3,096,115
15.02
Illinois
Lincoln Place
Kohl's, Marshall's, Ross
23.1
%
272,060
95.6
%
95.6
%
3,059,780
11.77
Georgia
Broughton Street Portfolio
(13 properties)
H&M, Lululemon,
Michael Kors, Starbucks
23.1
%
96,341
82.1
%
82.1
%
2,991,993
37.84
North Carolina
Wake Forest Crossing
Lowe's, TJ Maxx
23.1
%
202,880
95.6
%
95.6
%
2,941,626
15.16
California
146 Geary Street
─
23.1
%
11,436
-
%
-
%
-
-
Union and Fillmore
Collection (3 properties)
Eileen Fisher, L'Occitane,
Bonobos
20.8
%
7,148
100.0
%
100.0
%
735,902
102.95
Total - Fund IV
2,332,758
89.3
%
92.1
%
$
32,766,542
$
15.72
Fund V Portfolio Detail
New Mexico
Plaza Santa Fe
TJ Maxx, Best Buy,
Ross Dress for Less
20.1
%
224,223
97.5
%
98.1
%
$
3,886,164
$
17.77
Michigan
New Towne Plaza
Kohl's, Jo-Ann's, DSW
20.1
%
193,446
93.0
%
97.6
%
2,146,260
11.92
Fairlane Green
TJ Maxx, Michaels,
Bed Bath & Beyond
20.1
%
252,904
90.9
%
93.7
%
4,832,967
21.03
Maryland
Property (a)
Key Tenants
Year
Acquired
Acadia's
Interest
Gross Leasable
Area (GLA)
In Place
Occupancy
Leased
Occupancy
Annualized Base
Rent (ABR)
ABR/Per
Square Foot
Frederick County (2 properties)
Kohl's, Best Buy,
Ross Dress for Less
18.1
%
524,156
71.2
%
78.4
%
5,574,534
14.93
Connecticut
Tri-City Plaza
TJ Maxx, HomeGoods
18.1
%
302,888
89.7
%
89.7
%
3,923,263
14.44
Virginia
Landstown Commons
Best Buy, Bed Bath & Beyond,
Ross Dress for Less
20.1
%
404,808
90.2
%
90.9
%
7,628,581
20.90
Florida
Palm Coast Landing
TJ Maxx, PetSmart,
Ross Dress for Less
20.1
%
171,324
91.6
%
94.5
%
3,173,477
20.22
North Carolina
Hickory Ridge
Kohl's, Best Buy, Dick's
20.1
%
380,565
85.7
%
85.7
%
3,753,287
11.51
Rhode Island
Lincoln Commons
Stop and Shop, Marshalls,
HomeGoods
20.1
%
455,441
84.5
%
85.6
%
5,096,369
13.25
Alabama
Trussville Promenade
Wal-Mart, Regal Cinemas
20.1
%
463,681
94.7
%
95.1
%
4,485,983
10.21
Georgia
Hiram Pavilion
Kohl's, HomeGoods
20.1
%
362,675
97.2
%
97.8
%
4,190,542
11.89
California
Elk Grove Commons
Kohl's, HomeGoods
20.1
%
220,726
83.6
%
86.2
%
4,179,967
22.65
Utah
Family Center at Riverdale
Target, Sportman's
Warehouse
18.0
%
427,696
83.1
%
86.0
%
3,658,747
10.30
Total - Fund V
4,384,533
87.5
%
89.6
%
$
56,530,141
$
14.73
TOTAL FUND PROPERTIES
7,322,191
85.1
%
88.7
%
99,186,664
$
15.91
Acadia Share of Total Fund Properties
1,529,710
84.8
%
88.3
%
$
20,776,556
$
16.01
(a)
Excludes properties under development, see “Development and Redevelopment Activities” section below. The above occupancy and rent amounts do not include space which is currently leased, other than “leased occupancy,” but for which rent payment has not yet commenced. Residential and office GLA are excluded.
(b)
Property also includes 12,371 square feet of 2nd floor office space and a 29,760 square-foot parking garage (131 spaces).
Major Tenants
No individual retail tenant accounted for more than 5.5% of total Core and Fund base rents for the year ended December 31, 2020, or occupied more than 7.3% of total Core and Fund leased GLA as of December 31, 2020. The following table sets forth certain information for the 20 largest retail tenants by base rent for leases in place as of December 31, 2020. The amounts below include our pro-rata share of GLA and annualized base rent for the Operating Partnership’s partial ownership interest in properties including the Funds (GLA and Annualized Base Rent in thousands):
Percentage of Total
Represented by Retail Tenant
Retail Tenant
Number of
Stores in Portfolio (a)
Total GLA
Annualized
Base
Rent (a)
Total
Portfolio
GLA
Annualized
Base
Rent
Target
$
8,554
7.3
%
5.5
%
H&M
5,138
0.9
%
3.3
%
Walgreens (b)
4,086
1.4
%
2.6
%
Bed, Bath, and Beyond (c)
4,103
2.7
%
2.6
%
TJX Companies (d)
3,861
4.9
%
2.5
%
Royal Ahold (e)
3,794
2.9
%
2.4
%
Nordstrom, Inc.
3,515
1.3
%
2.2
%
Trader Joe's
2,720
0.7
%
1.7
%
LA Fitness International LLC
2,680
1.6
%
1.7
%
Kohls
2,605
3.0
%
1.7
%
Verizon
2,604
0.4
%
1.7
%
Gap(f)
2,506
1.0
%
1.6
%
Lululemon
2,499
0.1
%
1.6
%
Fast Retailing (g)
2,269
0.5
%
1.5
%
Albertsons Companies(h)
2,266
2.3
%
1.4
%
Home Depot
2,193
5.0
%
1.4
%
Dick's Sporting Goods, Inc
1,846
1.8
%
1.2
%
Bob's Discount Furniture
1,843
1.0
%
1.2
%
Ulta Salon Cosmetic & Fragrance
1,780
0.6
%
1.1
%
Michael's
1,611
1.0
%
1.0
%
Total
2,739
62,473
40.3
%
40.0
%
(a)
Does not include tenants that operate at only one Acadia location
(b)
Walgreens (5 locations), Rite Aid (2 locations)
(c)
Bed Bath and Beyond (4 locations), Christmas Tree Shops (1 location)
(d)
TJ Maxx (11 locations), Marshalls (8 locations), HomeGoods (6 locations), HomeSense (2 locations)
(e)
Stop and Shop (4 locations), Giant (1 location), Hannaford (1 location)
(f)
Old Navy (7 locations), Banana Republic (1 location), Gap (1 location)
(g)
Uniqlo (1 location), Theory (1 location)
(h)
Shaw’s (4 locations)
Lease Expirations
The following tables show scheduled lease expirations on a pro rata basis for retail tenants in place as of December 31, 2020, assuming that none of the tenants exercise renewal options (GLA and Annualized Base Rent in thousands):
Core Portfolio
Annualized Base Rent (a, b)
GLA
Leases Maturing in
Number of
Leases
Current
Annual
Rent
Percentage
of Total
Square
Feet
Percentage
of Total
Month to Month
$
0.3
%
0.3
%
8,579
6.3
%
7.4
%
13,974
10.3
%
8.0
%
23,394
17.3
%
14.8
%
15,467
11.4
%
13.7
%
19,364
14.3
%
12.2
%
14,259
10.5
%
11.5
%
5,260
3.9
%
3.5
%
14,860
11.0
%
15.1
%
7,845
5.8
%
5.7
%
3,298
2.4
%
1.8
%
Thereafter
8,907
6.5
%
6.0
%
Total
$
135,574
100.0
%
4,486
100.0
%
Funds
Annualized Base Rent (a, b)
GLA
Leases Maturing in
Number of
Leases
Current
Annual
Rent
Percentage
of Total
Square
Feet
Percentage
of Total
Month to Month
$
0.8
%
0.7
%
1,691
8.1
%
8.8
%
2,076
10.0
%
10.1
%
1,827
8.8
%
9.0
%
2,022
9.7
%
10.8
%
3,284
15.8
%
17.4
%
1,458
7.0
%
5.1
%
3.6
%
5.2
%
1,507
7.3
%
5.4
%
1,711
8.2
%
7.9
%
1,050
5.1
%
5.3
%
Thereafter
3,219
15.6
%
14.3
%
Total
$
20,777
100.0
%
1,298
100.0
%
(a)
Base rents do not include percentage rents, additional rents for property expense reimbursements, nor contractual rent escalations.
(b)
No single market, except as discussed below under Geographic Concentrations, represents a material amount of exposure to the Company as it relates to the rents from these leases. Given the diversity of these markets, properties and characteristics of the individual spaces, the Company cannot make any general representations as it relates to the expiring rents and the rates for which these spaces may be re-leased.
Geographic Concentrations
The following table summarizes our operating retail properties by region, excluding redevelopment properties, as of December 31, 2020. The amounts below include our pro-rata share of GLA and annualized base rent for the Operating Partnership’s partial ownership interest in properties, including the Funds (GLA and Annualized Base Rent in thousands):
Percentage of Total
Represented by
Region
Region
GLA (a,c)
% Occupied (b)
Annualized
Base
Rent (b, c)
Annualized Base
Rent per
Occupied
Square Foot (c)
GLA
Annualized
Base Rent
Core Portfolio:
New York Metro (d)
1,457
89.4
%
$
46,333
$
35.56
27.6
%
34.2
%
Chicago Metro
85.6
%
37,212
59.47
13.9
%
27.4
%
Mid-Atlantic
1,439
93.6
%
19,450
16.20
27.3
%
14.3
%
New England
98.9
%
11,121
16.67
14.6
%
8.2
%
Midwest
74.9
%
6,570
15.40
10.8
%
4.8
%
San Francisco Metro
100.0
%
6,293
42.29
2.8
%
4.6
%
Washington D.C. Metro
79.5
%
6,139
55.21
2.7
%
4.5
%
Los Angeles Metro
100.0
%
2,456
175.42
0.3
%
2.0
%
Total Core Operating Properties
5,272
89.9
%
$
135,574
$
30.05
100.0
%
100.0
%
Fund Portfolio:
Southeast
91.9
%
$
6,040
$
15.38
28.0
%
29.1
%
Northeast
85.7
%
5,267
12.79
31.4
%
25.4
%
New York Metro (d)
51.5
%
3,393
36.23
11.9
%
16.3
%
Mid-Atlantic
94.6
%
1,534
13.92
7.6
%
7.4
%
West
83.3
%
1,499
14.84
7.9
%
7.2
%
Midwest
91.8
%
1,403
17.03
5.9
%
6.8
%
Southwest
97.5
%
17.77
2.9
%
3.8
%
Chicago Metro
95.6
%
11.77
4.1
%
3.4
%
San Francisco Metro
36.0
%
102.95
0.3
%
0.6
%
Total Fund Operating Properties
1,530
84.8
%
$
20,777
$
16.01
100.0
%
100.0
%
(a)
Property GLA includes a total of 255,000 square feet, which is not owned by us. This square footage has been excluded for calculating annualized base rent per square foot.
(b)
The above occupancy and rent amounts do not include space that is currently leased, but for which payment of rent had not commenced as of December 31, 2020.
(c)
The amounts presented reflect the Operating Partnership's pro-rata shares of properties included within each region.
(d) New York Metro includes the tri-state and surrounding states.
Development and Redevelopment Activities
As part of our strategy, we invest in retail real estate assets that may require significant development. As of December 31, 2020, we had the following development or redevelopment projects in various stages of the development process:
Acquisition and Development Costs (a)
Property
Ownership (a)
Location
Estimated
Stabilization
Estimated Square
Feet Upon
Completion
Occupied /Leased
Rate
Key
Tenants
Description
Incurred (b)
Estimated Future Range
Estimated Total Range
Development:
CORE
1238 Wisconsin
80.0
%
Washington DC
29,000
-
%
TBD
Redevelopment/addition to existing building with ground level retail, upper floor office and residential units upon completion. Discretionary spend upon securing tenant(s)
$
3.6
$
26.8
to
$
28.0
$
30.4
to
$
31.6
FUND II
City Point Phase III (c)
94.2
%
Brooklyn, NY
72,000
0%/88%
BASIS Independent Schools
Discretionary spend upon securing tenant(s) for lease up
47.0
19.0
to
22.0
66.0
to
69.0
FUND III
Broad Hollow Commons
100.0
%
Farmingdale, NY
TBD
TBD
-
%
TBD
Discretionary spend upon securing necessary approvals and tenant(s) for lease up
23.1
26.9
to
36.9
50.0
to
60.0
FUND IV
110 University Place
100.0
%
New York, NY
14,000
-
%
TBD
Discretionary spend upon securing tenant(s) for lease up. Excludes Parking Garage.
14.0
6.6
to
11.0
20.6
to
25.0
717 N. Michigan Avenue
100.0
%
Chicago, IL
62,000
30%/30%
Disney Store
Discretionary spend upon securing tenant(s) for lease up
116.4
12.0
to
19.5
128.4
to
135.9
$
204.1
$
91.3
$
117.4
$
295.4
$
321.5
Major Redevelopment:
CORE
City Center
100.0
%
San Francisco, CA
241,000
65%/98%
Target, Whole Foods, PetSmart
Ground up development of pad sites and street level retail and re-tenanting/redevelopment for Whole Foods
$
196.9
$
7.0
to
$
10.0
$
203.9
to
$
206.9
Elmwood Park
100.0
%
Elmwood Park, NJ
144,000
51%/78%
Lidl
Re-tenanting and split of former 48,000 square foot Acme with 28,000 square foot Lidl and 20,000 square feet of remaining for discretionary spend; façade upgrade
1.6
3.4
to
3.9
5.0
to
5.5
Route 6 Mall
100.0
%
Honesdale, PA
TBD
TBD
17%/17%
TBD
Discretionary spend for re-tenanting former 120,000 square foot Kmart anchor space once tenant(s) are secured
-
5.0
to
7.0
5.0
to
7.0
Mad River
100.0
%
Dayton, OH
TBD
TBD
48%/48%
TBD
Discretionary spend for the re-tenanting former 33,000 square foot Babies R Us space once tenant(s) are secured
-
1.9
to
2.3
1.9
to
2.3
$
198.5
$
17.3
$
23.2
$
215.8
$
221.7
(a)
Ownership percentages and costs represent the Core or Fund level ownership and not Acadia’s pro rata share.
(b)
Incurred amounts include costs associated with the initial carrying value.
(c)
Incurred amounts include the conversion of a $33.8 million note receivable to improvements in the property.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
As previously disclosed in our periodic filings, one of our subsidiaries was party to a litigation matter that was settled on October 30, 2020 as further described in Note 7.
In addition, from time to time, we are a party to various legal proceedings, claims or regulatory inquiries and investigations arising out of, or incident to, our ordinary course of business. While we are unable to predict with certainty the outcome of any particular matter, management does not expect, when such matters are resolved, that our resulting exposure to loss contingencies, if any, will have a material adverse effect on our consolidated financial position.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES AND PERFORMANCE GRAPH.
Market Information, Dividends and Holders of Record of our Common Shares
At February 12, 2021, there were 254 holders of record of our Common Shares, which are traded on the New York Stock Exchange under the symbol “AKR.” Our quarterly dividends declared are discussed in Note 10 and the characterization of such dividends for Federal Income Tax purposes is discussed in Note 14.
Securities Authorized for Issuance Under Equity Compensation Plans
At the 2020 annual shareholders’ meeting, the shareholders' approved the 2020 Share Incentive Plan (the “2020 Plan”). This plan replaced the Second Amended and Restated 2006 Incentive Plan (the “2006 Plan”) and increased the aggregate number of Common Shares authorized for issuance by 2,650,000 shares for a total of 2,829,953 shares available to be issued (which includes 179,953 carried over from the 2006 Plan). The 2020 Plan authorizes the Company to issue options, Restricted Shares, LTIP Units and other securities (collectively “Awards”) to, among others, the Company’s officers, trustees and employees. See Note 13 in the Notes to Consolidated Financial Statements, for a summary of our Share Incentive Plans.
The following table provides information related to the 2020 Plan as of December 31, 2020:
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
securities to
be issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted-average
exercise price
of outstanding
options, warrants
and rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
Equity compensation plans approved by security holders
-
$
-
2,738,013
Equity compensation plans not approved by security holders
-
-
-
Total
-
$
-
2,738,013
Remaining Common Shares available under the 2020 Plan are as follows:
Outstanding Common Shares as of December 31, 2020
86,268,303
Outstanding OP Units as of December 31, 2020
4,890,875
Total Outstanding Common Shares and OP Units
91,159,178
Common Shares and OP Units pursuant to the 2020 Plan
2,829,953
Less: Issuance of Restricted Shares and LTIP Units Granted
(91,940
)
Number of Common Shares remaining available
2,738,013
Share Price Performance
The following graph compares the cumulative total shareholder return for our Common Shares for the period commencing December 31, 2015, through December 31, 2020, with the cumulative total return on the Russell 2000 Index (“Russell 2000”), the NAREIT All Equity REIT Index (the “NAREIT”) and the SNL Shopping Center REITs (the “SNL”) over the same period. Total return values for the Russell 2000, the NAREIT, the SNL and the Common Shares were calculated based upon cumulative total return assuming the investment of $100.00 in each of the Russell 2000, the NAREIT, the SNL and our Common Shares on December 31, 2015, and assuming reinvestment of dividends. The shareholder return as set forth in the table below is not necessarily indicative of future performance. The information in this section is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
At December 31,
Index
Acadia Realty Trust
$
100.00
$
102.04
$
88.64
$
80.31
$
91.37
$
51.08
Russell 2000
100.00
121.31
139.08
123.76
155.35
186.36
NAREIT All Equity REIT Index
100.00
108.63
118.05
113.28
145.75
138.28
SNL REIT Retail Shopping Ctr Index
100.00
103.49
92.02
77.22
98.14
70.96
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity Securities
The Company maintains a share repurchase program which authorizes management, at its discretion, to repurchase up to $200.0 million of its outstanding Common Shares. The program may be discontinued or extended at any time. The Company repurchased 1,219,065 and 2,294,235 shares for $22.4 million and $55.1 million, inclusive of fees, during the years ended December 31, 2020 and 2018, respectively. The Company did not repurchase any shares during the year ended December 31, 2019. As of December 31, 2020, management may repurchase up to approximately $122.6 million of the Company’s outstanding Common Shares under this program.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
As of December 31, 2020, there were 187 properties, which we own or have an ownership interest in, within our Core Portfolio and Funds. Our Core Portfolio consists of those properties either 100% owned, or partially owned through joint venture interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Funds. These properties primarily consist of street and urban retail, and suburban shopping centers. See Item 2. Properties for a summary of our wholly-owned and partially-owned retail properties and their physical occupancies at December 31, 2020.
The majority of our operating income is derived from rental revenues from operating properties, including expense recoveries from tenants, offset by operating and overhead expenses.
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:
•
Own and operate a Core Portfolio of high-quality retail properties located primarily in high-barrier-to-entry, densely-populated metropolitan areas and create value through accretive development and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our Core asset recycling and acquisition initiative.
•
Generate additional external growth through an opportunistic yet disciplined acquisition program within our Funds. We target transactions with high inherent opportunity for the creation of additional value through:
◦
value-add investments in street retail properties, located in established and “next generation” submarkets, with re-tenanting or repositioning opportunities,
◦
opportunistic acquisitions of well-located real-estate anchored by distressed retailers, and
◦
other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt.
Some of these investments historically have also included, and may in the future include, joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.
•
Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.
SIGNIFICANT DEVELOPMENTS DURING THE year ended December 31, 2020
Special Note Regarding the COVID-19 Pandemic
During the first quarter of 2020, the COVID-19 Pandemic began to impact the Company. In order to protect citizens and slow the spread of COVID-19, a majority of state governments in the United States instituted restrictions on travel, implemented “shelter-in-place” or “stay-at-home” orders and social distancing practices, and mandated shutdowns of certain “non-essential” businesses for what was then an indeterminate period of time. As a result, a majority of the Company’s retail tenants were forced to temporarily close their businesses during all or a portion of the second quarter of 2020. While most tenants have since reopened, the tenant closures created concern regarding the Company’s ability to fully collect rents billed during the second and third quarters of 2020 and possibly thereafter from non-operating tenants, many of which have requested rent concessions from the Company. In addition, the COVID-19 Pandemic has had a significant adverse impact on economic and market conditions resulting in a decline in the Company’s share price, disruption of or lack of access to debt and the capital markets, and depressed real estate values, among others. The Company notes the following as a result of the COVID-19 Pandemic:
•
Effective March 20, 2020, the Company closed its offices and its employees successfully transitioned to working from their homes. Effective June 29, 2020 the Company has reopened its main office and has put robust protocols in place for protecting its employees against the spread of the COVID-19 virus. Effective January 8, 2021, the Company has provided an option to its employees work from home through February 28, 2021.
•
On March 31, 2020, the Company issued a press release relaying that certain major development and construction projects had been placed on hold and withdrew its 2020 guidance.
•
The Company reviewed its assets for impairment at December 31, 2020 and March 31, 2020 and determined that it would take aggregate non-cash impairment charges of $34.0 million and $51.5 million, of which $8.2 million and $12.4 million, respectively, was the Company’s pro-rata share, estimated holding periods, estimated net operating income and cap rates at selected properties due to circumstances stemming from the COVID-19 Pandemic (Note 8). The Company reviewed its assets for impairment at June 30, 2020 and September 30, 2020 and determined that no additional impairment charges were required for these periods.
•
Tenant Operating Status (Unaudited) - The following table illustrates the percentage of the Company’s consolidated and unconsolidated ABR derived from stores which were open or partially open for business as of the dates indicated:
Percentage of Tenants Open for Business as of
June 30,
September 30,
December 31,
January 31,
Core
%
%
%
%
Fund
%
%
%
%
•
Rent Collections - The following table depicts collections of pre-COVID billings (original contract rents without regard to deferral or abatement agreements) and excludes the impact of any security deposits applied against tenant accounts as of the dates shown:
Collections as of:
September 30, 2020 for
December 31, 2020 for
January 31, 2021 for
Second Quarter 2020
Third Quarter 2020
Second Quarter 2020
Third Quarter 2020
Fourth Quarter 2020
Fourth Quarter 2020
(Unaudited)
Core
%
%
%
%
%
%
Fund
%
%
%
%
%
%
•
The Company has negotiated rent deferrals and abatements with select tenants. As of December 31, 2020, the Company has deferred rents aggregating $10.7 million included in Rents receivable on its balance sheet and through December 31, 2020 has abated rents of $2.6 million as the Company’s proportionate share (Note 1). Subsequent to December 31, 2020 and through January 31, 2021 the Company has entered into 13 additional deferral and abatement agreements (Note 16).
•
The Company reviewed the collectability of its rents receivable and straight-line rents and has recorded credit loss reserves of approximately $46.8 million of which $29.9 million was the Company’s share, (Note 1, Note 3) during the year ended December 31, 2020 primarily related to projected tenant defaults stemming from business closures attributable to the COVID-19 Pandemic.
•
The Company continues to have active discussions with existing and potential new tenants for new and renewed leases. However, the uncertainty relating to the COVID-19 Pandemic could result in higher vacancy than the Company otherwise would have experienced, a longer amount of time to fill vacancies and potentially lower rental rates. As of December 31, 2020, approximately 6.6% and 8.9% of the Company’s Core and Fund portfolio annualized base rents, respectively, were subject to month-to-month leases or leases scheduled to expire in 2021 and 10.3% and 10.0%, respectively, was subject to leases scheduled to expire in 2022.
•
The Company has numerous long-dated interest rate cash flow hedges (Note 7, Note 8) in place to effectively fix the interest rates on its variable-rate debt. In periods when current referenced interest rates fall below strike rates of the swap, the Company is required to make payments that are charged to interest expense. The fair value of the interest rate swaps at December 31, 2020 was a liability of $90.1 million, which represents the present value of expected payments over the weighted-average remaining term of the swaps, which was 7.6 years.
•
At December 31, 2020 a Fund III mortgage and a Fund IV term loan aggregating $115.2 million, or $27.1 million at the Company’s share, had not met their liquidity requirements. In addition, at that same date, three Fund mortgages aggregating $124.1 million, or $25.6 million at the Company’s share, had not met their debt yield and/or debt service coverage ratio requirements. Some of these lenders may require cash sweeps of property rents until these conditions are remedied (Note 7).
•
Beginning with the second quarter of 2020, the Board temporarily suspended distributions on its Common Shares and Common OP Units, which suspension the Board has determined to continue through the fourth quarter of 2020. Assuming that current operating conditions continue to prevail, the Company currently expects to reinstate quarterly distributions in the first quarter of 2021, which would be subject to Board approval at that time (Note 10).
While the Company currently considers the disruptions associated with the COVID-19 Pandemic to be temporary, if such disruptions escalate, are protracted or have a more severe impact than anticipated, they may have a material adverse effect on the Company’s revenues, results of operations, financial condition, and liquidity in future periods.
Investments
Core Portfolio
During the year ended December 31, 2020, we invested in two properties aggregating $19.2 million, inclusive of transaction costs, within our Core portfolio as follows:
•
On January 9, 2020, we acquired a fully-occupied retail condominium, 37 Greene Street, located in the SoHo section of New York City, for $15.7 million.
•
On February 13, 2020, we acquired a fully-occupied, mixed-use building in Chicago, Illinois, for $3.5 million.
On April 1, 2020, as described further below, in a non-cash transaction, we converted a note receivable into the remaining venture partner’s interest in Town Center. We consolidated the previously unconsolidated investment (Note 4). In addition, we obtained our partner’s 78.22% noncontrolling interest in Brandywine Holdings for nominal consideration upon settlement of a legal matter (Note 7).
Funds
During June, Mervyns II liquidated a portion of the shares it owns in connection with its Investment in Albertsons (Note 4), which had an initial public offering. Mervyns II recognized realized gains on the sale of those shares in addition to the appreciation in the fair value of its remaining shares of Albertsons. Unrealized holding gains, distributions and other for the year ended December 31, 2020 includes Mervyns II’s $72.4 million share of net unrealized holding gains through December 31, 2020 and its $23.2 million share of realized distributions related to its Investment in Albertsons, of which the Company’s aggregate share is $27.1 million.
During the year ended December 31, 2020, we did not make any investments within our Fund portfolio. However, Fund IV acquired the venture partner’s interest in two of its Broughton Street properties for $1.3 million (Note 4) and now consolidates those properties. In addition, Fund II converted its $33.8 million note receivable for an interest in real estate on November 2, 2020 (Note 3).
Dispositions of Real Estate
During the year ended December 31, 2020, we sold two land parcels in our Core Portfolio for a total of $0.4 million. In addition, a Fund IV property, two Fund III parcels and a Fund IV parcel were sold for a total of $22.0 million. These transactions resulted in an aggregate gain of $0.7 million of which the Company’s share was $0.3 million (Note 2).
Financing Activity
During the year ended December 31, 2020, the Company had the following financing activity (Note 7):
•
obtained a Core term loan for $30.0 million
•
settled a mortgage that was previously in default for $30.0 million and recognized a gain on debt extinguishment of $18.3 million, of which $4.1 million was the Company’s share
•
paid off a Fund IV mortgage in the amount of $11.6 million in connection with the sale of a property
•
extended the maturity dates of the Fund II term loan, the Fund V Subscription line and seven Fund mortgages, which had aggregate outstanding balances of $425.6 million at December 31, 2020; and
•
reduced borrowings on three Fund loans totaling $103.4 million by $11.5 million.
Structured Financing Investments
During the year ended December 31, 2020, the Company had the following Structured Financing investment activity (Note 3):
•
On January 17, 2020, the Company provided a loan for $54.0 million to an entity that owns an interest in 850 Third Avenue, in Brooklyn, New York
•
On February 6, 2020, the Company provided a loan for $5.0 million to one of the Company’s venture partners
•
On April 1, 2020, in a non-cash transaction, the Company converted its $38.7 million note receivable plus accrued interest of $2.0 million to a controlling interest in Town Center in Wilmington, Delaware as described above
•
On November 2, 2020, in a non-cash transaction, Fund II converted its $33.8 million note receivable including accrued interest to construction improvements on its retail condominium at City Point in Brooklyn, New York; and
•
One Core and one Fund III notes receivable matured but were not repaid. These notes, which aggregated $31.6 million including accrued interest, remained in default at December 31, 2020; however, management has determined for each loan that the collateral is sufficient to cover the loan’s carrying value at December 31, 2020. In addition, there are certain personal guarantees associated with these notes receivable.
Equity Repurchases
During the first quarter of 2020, the Company repurchased 1,219,065 Common Shares for $22.4 million, inclusive of $0.1 million of fees at a weighted average price per share of $18.29, under the share repurchase program, under which $122.6 million remains available as of December 31, 2020 (Note 10).
RESULTS OF OPERATIONS
See Note 12 in the Notes to Consolidated Financial Statements for an overview of our three reportable segments.
Comparison of Results for the Year Ended December 31, 2020 to the Year Ended December 31, 2019
The results of operations by reportable segment for the year ended December 31, 2020 compared to the year ended December 31, 2019 are summarized in the table below (in millions, totals may not add due to rounding):
Year Ended
Year Ended
December 31, 2020
December 31, 2019
Increase (Decrease)
Core
Funds
SF
Total
Core
Funds
SF
Total
Core
Funds
SF
Total
Revenues
$
160.3
$
95.2
$
-
$
255.5
$
173.2
$
122.2
$
-
$
295.3
$
(12.9
)
$
(27.0
)
$
-
$
(39.8
)
Depreciation and amortization
(76.1
)
(73.7
)
-
(149.8
)
(61.8
)
(63.6
)
-
(125.4
)
14.3
10.1
-
24.4
Property operating expenses, other
operating and real estate taxes
(57.2
)
(42.9
)
-
(100.1
)
(47.0
)
(43.4
)
-
(90.5
)
10.2
(0.5
)
-
9.6
General and administrative expenses
-
-
-
(36.1
)
-
-
-
(35.4
)
-
-
-
0.7
Impairment charges
(0.4
)
(85.2
)
-
(85.6
)
-
(1.7
)
-
(1.7
)
0.4
83.5
-
83.9
Gain on disposition of properties
0.2
0.5
-
0.7
16.8
13.6
-
30.3
(16.6
)
(13.1
)
-
(29.6
)
Operating income (loss)
26.6
(106.0
)
-
(115.4
)
81.1
26.9
-
72.6
(54.5
)
(132.9
)
-
(188.0
)
Interest income
-
-
9.0
9.0
-
-
8.0
8.0
-
-
1.0
1.0
Equity in earnings (losses) of
unconsolidated affiliates
(0.9
)
(0.4
)
-
(1.2
)
9.0
(0.1
)
-
8.9
(9.9
)
(0.3
)
-
(10.1
)
Interest expense
(33.2
)
(38.9
)
-
(72.1
)
(28.3
)
(45.5
)
-
(73.8
)
4.9
(6.6
)
-
(1.7
)
Realized and unrealized holding gains
on investments and other
18.6
95.4
-
113.9
0.3
6.6
-
6.9
18.3
88.8
-
107.0
Income tax provision
-
-
-
(0.3
)
-
-
-
(1.5
)
-
-
-
1.2
Net income (loss)
11.2
(49.8
)
9.0
(66.0
)
62.1
(12.0
)
8.0
21.2
(50.9
)
(37.8
)
1.0
(87.2
)
Net loss (income) attributable
to noncontrolling interests
(5.8
)
63.1
-
57.3
0.3
31.5
-
31.8
6.1
(31.6
)
-
(25.5
)
Net income attributable to Acadia
$
5.3
$
13.3
$
9.0
$
(8.8
)
$
62.5
$
19.5
$
8.0
$
53.0
$
(57.2
)
$
(6.2
)
$
1.0
$
(61.8
)
Core Portfolio
The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net income attributable to Acadia for our Core Portfolio decreased $57.2 million for the year ended December 31, 2020 compared to the prior year as a result of the changes further described below.
Revenues for our Core Portfolio decreased $12.9 million for the year ended December 31, 2020 compared to the prior year primarily due to (i) a $21.3 million increase in credit loss reserves (comprised of $12.9 million and $8.4 million of billed rent and straight-line rent, respectively) in 2020 related to the COVID-19 Pandemic (Note 1); (ii) the write-off of a below-market lease in the prior year period related to a tenant that vacated for $5.7 million, (iii) $4.0 million from tenant bankruptcies and (iv) $1.0 million from property dispositions in 2019. These decreases were partially offset by (i) $8.9 million related to the consolidation of Town Center in 2020 (Note 4) and (ii) additional rents of $8.1 million from Core Portfolio property acquisitions during 2019 and 2020 (Note 2).
Depreciation and amortization for our Core Portfolio increased $14.3 million for the year ended December 31, 2020 compared to the prior year primarily due to $6.1 million from the consolidation of Town Center, $5.1 million from the write-off of unamortized tenant improvements and leasing commissions related to a vacating tenant in 2020, and $4.2 million from Core Portfolio property acquisitions in 2019 and 2020.
Property operating expenses, other operating and real estate taxes for our Core Portfolio increased $10.2 million for the year ended December 31, 2020 compared to the prior year primarily due to $7.1 million for Brandywine Holdings litigation (Note 7), $1.8 million related to the consolidation of Town Center and $1.1 million from Core Portfolio property acquisitions in 2019 and 2020.
Gain on disposition of properties of $0.2 million in 2020 was related to two land parcel sales compared to $16.8 million for the sale of Pacesetter Park in 2019 (Note 2).
Equity in earnings (losses) of unconsolidated affiliates for our Core Portfolio decreased $9.9 million for the year ended December 31, 2020 compared to the prior year due to $5.4 million from the consolidation of Town Center in 2020 as well as a $4.5 million increase in credit loss reserves at unconsolidated properties related to the COVID-19 Pandemic (Note 1).
Interest expense for our Core Portfolio increased $4.9 million for the year ended December 31, 2020 compared to the prior year primarily due to higher average outstanding borrowings in 2020.
Realized and unrealized holding gains on investments and other for our Core Portfolio of $18.3 million in 2020 is due to a gain on debt extinguishment related to the Brandywine Holdings note (Note 7).
Net loss (income) attributable to noncontrolling interests for our Core Portfolio increased $6.1 million for the year ended December 31, 2020 compared to the prior year based on the noncontrolling interests’ share of the variances discussed above.
Funds
The results of operations for our Funds segment are depicted in the table above under the headings labeled “Funds.” Segment net income attributable to Acadia for the Funds decreased $6.2 million for the year ended December 31, 2020 compared to the prior year as a result of the changes described below.
Revenues for the Funds decreased $27 million for the year ended December 31, 2020 compared to the prior year primarily due to (i) a $25.6 million increase in credit loss reserves (comprised of $11.9 million and $13.7 million of billed rent and straight-line rent, respectively) in 2020 primarily related to the COVID-19 Pandemic (Note 1); (ii) $5.1 million from the acceleration of amortization on a below-market lease in 2019, (iii) $4.3 million from Fund property dispositions (Note 2) and (iv) $1.4 million from tenant bankruptcies. These decreases were partially offset $8.8 million from Fund property acquisitions in 2019.
Depreciation and amortization for the Funds increased $10.1 million for the year ended December 31, 2020 compared to the prior year primarily due to $11.3 million from the write-off of tenant improvements and leasing commissions related to vacated tenants in 2020 and $4.5 million from Fund property acquisitions in 2019 partially offset by $3.5 million for write-offs due to tenant bankruptcies in 2019 and $2.1 million from Fund property dispositions in 2019 and 2020.
Impairment charges for the Funds increased $83.5 million for the year ended December 31, 2020 compared to the prior year (Note 8). Impairment of $85.2 million during 2020 for the Funds relates to $33.8 million in Fund III and $51.4 million in Fund IV. Charges during 2019 relate to $1.7 million in Fund IV.
Gain on disposition of properties for the Funds decreased $13.1 million for the year ended December 31, 2020 compared to the prior year due to $13.6 million for the sale of 3104 M Street and Nostrand Avenue in Fund III and 938 W. North and JFK Plaza in Fund IV during 2019 compared to the sale of Fund IV’s Colonie Plaza during 2020 (Note 2, Note 4).
Interest expense for the Funds decreased $6.6 million for the year ended December 31, 2020 compared to the prior year due to $9.4 million from lower average interest rates in 2020 and $2.7 million from lower loan cost amortization in 2020. These decreases were offset by a $4.5 million decrease in interest capitalized in 2020 due to ceasing capitalization interest on Fund III’s Cortlandt Crossing and Fund IV’s 717 N. Michigan Avenue and a $0.4 million increase related to higher average outstanding borrowings in 2020.
Realized and unrealized holding gains on investments and other for the Funds increased $88.8 million for the year ended December 31, 2020 compared to the prior year due to a $72.4 million mark-to-market adjustment on the Albertson’s IPO shares and a $23.2 million net realized gain on disposition of Albertson’s shares during 2020 (Note 4). These increases were primarily offset by a $5.0 million New Market Tax Credit transaction at Fund II’s City Point investment and $1.6 million from an incentive fee earned from Fund III’s Storage investment during 2019.
Net loss (income) attributable to noncontrolling interests for the Funds decreased $31.6 million for the year ended December 31, 2020 compared to the prior year based on the noncontrolling interests’ share of the variances discussed above. Net loss attributable to noncontrolling interests in the Funds includes asset management fees earned by the Company of $15.2 million and $17.5 million for the year ended December 31, 2020 and 2019, respectively.
Structured Financing
The results of operations for our Structured Financing segment are depicted in the table above under the headings labeled “SF.” Interest income for the Structured Financing portfolio increased $1 million for the year ended December 31, 2020 compared to the prior year primarily due to
$5.9 million of additional interest income from new notes issued in 2020 and 2019 partially offset by $4.1 million from the conversion of the Brandywine Note Receivable to equity in 2020 (Note 4) and the payoff of a Fund IV note during 2019 (Note 3).
Unallocated
The Company does not allocate general and administrative expense and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.” Unallocated income taxes increased $1.2 million for the year ended December 31, 2020 compared to the prior year due to the establishment of a $1.0 million deferred tax asset reserve at the Fund III Taxable REIT Subsidiary (“TRS”) which was primarily offset by the newly available carryback of net operating losses under Federal rules in 2020. In 2019, the Company established a $1.7 million deferred tax asset reserve at the Core TRS.
Prior Year Periods
Discussions of 2018 items and comparisons between the year ended December 31, 2019 and 2018, respectively, that are not included in this Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
SUPPLEMENTAL FINANCIAL MEASURES
Net Property Operating Income
The following discussion of net property operating income (“NOI”) and rent spreads on new and renewal leases includes the activity from both our consolidated and our pro-rata share of unconsolidated properties within our Core Portfolio. Our Funds invest primarily in properties that typically require significant leasing and development. Given that the Funds are finite-life investment vehicles, these properties are sold following stabilization. For these reasons, we believe NOI and rent spreads are not meaningful measures for our Fund investments.
NOI represents property revenues less property expenses. We consider NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of Core Portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance, however, our method of calculating these may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
A reconciliation of consolidated operating income to net operating (loss) income - Core Portfolio follows (in thousands):
Year Ended December 31,
Consolidated operating (loss) income (a)
$
(115,379
)
$
72,603
$
32,681
Add back:
General and administrative
36,055
35,416
34,343
Depreciation and amortization
149,793
125,443
117,549
Impairment charges
85,598
1,721
-
Less:
Above/below-market rent, straight-line rent and other adjustments (b)
13,624
(24,447
)
(23,521
)
Gain on disposition of properties
(683
)
(30,324
)
(5,140
)
Consolidated NOI
169,008
180,412
155,912
Noncontrolling interest in consolidated NOI
(48,536
)
(52,248
)
(37,496
)
Less: Operating Partnership's interest in Fund NOI included above
(11,845
)
(13,870
)
(9,790
)
Add: Operating Partnership's share of unconsolidated joint ventures NOI (c)
15,659
25,948
24,919
NOI - Core Portfolio
$
124,286
$
140,242
$
133,545
(a)
Prior year amounts have been adjusted to include gains on disposition of properties, which have been reclassified to operating income effective January 1, 2019.
(b)
Includes straight-line rent reserves. See Note 1 for additional information about straight-line rent reserves and adjustments for the periods presented.
(c)
Does not include the Operating Partnership’s share of NOI from unconsolidated joint ventures within the Funds.
Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties which we acquired, sold or expected to sell, and developed during these periods. The following table summarizes Same-Property NOI for our Core Portfolio (in thousands):
Three Months Ended December 31,
Year Ended December 31,
Core Portfolio NOI
$
30,556
$
35,572
$
124,286
$
140,242
Less properties excluded from Same-Property NOI
(2,778
)
(3,197
)
(13,872
)
(11,896
)
Same-Property NOI
$
27,778
$
32,375
$
110,414
$
128,346
Percent change from prior year period
(14.2
)%
(14.0
)%
Components of Same-Property NOI:
Same-Property Revenues
$
40,126
$
44,443
$
157,509
$
175,932
Same-Property Operating Expenses
(12,348
)
(12,068
)
(47,095
)
(47,586
)
Same-Property NOI
$
27,778
$
32,375
$
110,414
$
128,346
Rent Spreads on Core Portfolio New and Renewal Leases
The following table summarizes rent spreads on both a cash basis and straight-line basis for new and renewal leases based on leases executed within our Core Portfolio for the periods presented. Cash basis represents a comparison of rent most recently paid on the previous lease as compared to the initial rent paid on the new lease. Straight-line basis represents a comparison of rents as adjusted for contractual escalations, abated rent and lease incentives for the same comparable leases.
Three Months Ended December 31, 2020
Year Ended December 31, 2020
Core Portfolio New and Renewal Leases
Cash Basis
Straight-
Line Basis
Cash Basis
Straight-
Line Basis
Number of new and renewal leases executed
GLA commencing
226,659
226,659
567,548
567,548
New base rent
$
14.46
$
14.54
$
17.97
$
18.42
Expiring base rent
$
13.67
$
12.77
$
17.47
$
16.66
Percent growth in base rent
5.8
%
13.9
%
2.9
%
10.6
%
Average cost per square foot (a)
$
3.10
$
3.10
$
2.55
$
2.55
Weighted average lease term (years)
5.3
5.3
6.1
6.1
(a)
The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
Funds from Operations
We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance 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 our performance. It is helpful as it excludes various items included in net income that are not indicative of the operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of real estate. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by generally accepted accounting principles (“GAAP”) and is not indicative of cash available to fund all cash needs, including distributions. It should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property and impairment of depreciable real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Also consistent with NAREIT’s definition of FFO, the Company has elected to include gains and losses incidental to its main business (including those related to its RCP investments such as Albertsons) in FFO. A reconciliation of net income attributable to Acadia to FFO follows (dollars in thousands, except per share amounts):
Year Ended December 31,
Net (loss) income attributable to Acadia
$
(8,759
)
$
53,045
$
31,439
Depreciation of real estate and amortization of leasing costs (net of
noncontrolling interests' share)
106,158
89,373
85,852
Impairment charges (net of noncontrolling interests' share)
17,323
-
Gain on disposition of properties (net of noncontrolling interests' share)
(291
)
(19,786
)
(994
)
(Loss) income attributable to Common OP Unit holders
(370
)
3,295
2,033
Distributions - Preferred OP Units
Funds from operations attributable to Common Shareholders and
Common OP Unit holders
$
114,556
$
126,862
$
118,870
Funds From Operations per Share - Diluted
Basic weighted-average shares outstanding, GAAP earnings
86,441,922
84,435,826
82,080,159
Weighted-average OP Units outstanding
4,993,267
5,111,262
4,941,661
Basic weighted-average shares outstanding, FFO
91,435,189
89,547,088
87,021,820
Assumed conversion of Preferred OP Units to common shares
464,623
499,345
499,345
Assumed conversion of LTIP units and restricted share units to
common shares
-
-
206,646
Diluted weighted-average number of Common Shares and Common
OP Units outstanding, FFO
91,899,812
90,046,433
87,727,811
Diluted Funds from operations, per Common Share and Common OP Unit
$
1.25
$
1.41
$
1.35
LIQUIDITY AND CAPITAL RESOURCES
Uses of Liquidity and Cash Requirements
Our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments which include the funding of our capital committed to the Funds and property acquisitions and development/re-tenanting activities within our Core Portfolio, (iii) distributions to our Fund investors, (iv) debt service and loan repayments and (v) share repurchases.
Distributions
In order to qualify as a REIT for federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. During the year ended December 31, 2020, we paid dividends and distributions on our Common Shares, Common OP Units and Preferred OP Units totaling $54.1 million. Beginning with the second quarter of 2020, the Board temporarily suspended distributions on our Common Shares and Common OP Units, which suspension the Board determined to continue through the fourth quarter of 2020. Assuming that current operating conditions continue to prevail, the Company currently expects to reinstate quarterly distributions in the first quarter of 2021, which would be subject to Board approval at that time (Note 10).
Investments in Real Estate
During the year ended December 31, 2020, within our Core Portfolio we invested in two new properties aggregating $19.2 million inclusive of transaction costs (Note 2). For activity subsequent to December 31, 2020, see Note 16.
On April 1, 2020, in a non-cash transaction, we converted a note receivable into the remaining venture partner’s interest in Town Center and now consolidate that property.
During the year ended December 31, 2020, we did not make any new investments within our Funds. However, during the second quarter 2020, Fund IV acquired the venture partner’s interest in two of its Broughton Street properties for $1.3 million (Note 4) and now consolidates those properties. On November 2, 2020, in a non-cash transaction, Fund II converted its $33.8 million note receivable including accrued interest to construction improvements on its retail condominium at City Point in Brooklyn, New York.
Structured Financing Investments
During the year ended December 31, 2020, we made two loans totaling $59.0 million (Note 3).
Capital Commitments
During the year ended December 31, 2020, we made capital contributions aggregating $10.9 million to our Funds. At December 31, 2020, our share of the remaining capital commitments to our Funds aggregated $75.4 million as follows:
•
$0.5 million to Fund III. Fund III was launched in May 2007 with total committed capital of $450.0 million of which our share was $89.6 million. During 2015, we acquired an additional interest, which had an original capital commitment of $20.9 million.
•
$14.0 million to Fund IV. Fund IV was launched in May 2012 with total committed capital of $530.0 million of which our share was $122.5 million.
•
$60.9 million to Fund V. Fund V was launched in August 2016 with total committed capital of $520.0 million of which our share is $104.5 million.
During April 2018, a $15.0 million distribution was made to the Fund II investors, including $4.3 million to the Operating Partnership, which amount was re-contributed to Fund II in April 2020. During June 2020, a distribution was made by Mervyn’s II to its investors which was re-contributed to Fund II in the amount of $7.5 million. During August 2020, a recallable distribution of $15.7 million was made by Mervyn’s II to its investors, of which $4.5 million was the Company’s share (Note 1).
Development Activities
During the year ended December 31, 2020, capitalized costs associated with development activities totaled $8.1 million (Note 2). At December 31, 2020, we had a total of eight consolidated and one unconsolidated projects under development or redevelopment for which the estimated total cost to complete these projects through 2025 was $108.6 million to $140.6 million and our share was approximately $54.7 million to $67.6 million. Substantially all remaining development and redevelopment costs are discretionary and dependent upon the resumption of tenant interest due to aforementioned disruptions related to the COVID-19 Pandemic.
Debt
A summary of our consolidated debt, which includes the full amount of Fund related obligations and excludes our pro rata share of debt at our unconsolidated subsidiaries, is as follows (in thousands):
December 31,
December 31,
Total Debt - Fixed and Effectively Fixed Rate
$
1,143,152
$
1,403,324
Total Debt - Variable Rate
626,902
314,604
1,770,054
1,717,928
Net unamortized debt issuance costs
(6,763
)
(10,383
)
Unamortized premium
Total Indebtedness
$
1,763,839
$
1,708,196
As of December 31, 2020, our consolidated outstanding mortgage and notes payable aggregated $1,770.1 million, excluding unamortized premium of $0.5 million and unamortized loan costs of $6.8 million, and were collateralized by 42 properties and related tenant leases. Interest rates on our outstanding indebtedness ranged from 1.40% to 5.89% with maturities that ranged from February 2021 to April 2035. Taking into consideration $988.6 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,143.2 million of the portfolio debt, or 64.6%, was fixed at a 3.72% weighted-average interest rate and $626.9 million, or 35.4% was floating at a 2.39% weighted average interest rate as of December 31, 2020. Our variable-rate debt includes $139.2 million of debt subject to interest rate caps.
Without regard to available extension options, there is $409.8 million of debt maturing in 2021 at a weighted-average interest rate of 2.14%; there is $6.8 million of scheduled principal amortization due in 2021; and our share of scheduled 2021 principal payments and maturities on our unconsolidated debt was $16.8 million at December 31, 2020. In addition, $528.0 million of our total consolidated debt and $7.0 million of our pro-rata share of unconsolidated debt will come due in 2022. As it relates to the aforementioned maturing debt in 2021 and 2022, we have options to extend consolidated debt aggregating $231.3 million and $266.3 million, respectively; however, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options. As it relates to the remaining maturing debt in 2021 and 2022, we may not have sufficient liquidity on hand to repay such indebtedness, and, therefore, we expect to refinance at least a portion of this indebtedness or select other alternatives based on market conditions as these loans mature; however, there can be no assurance that we will be able to obtain financing at acceptable terms.
On October 30, 2020, the Company settled litigation related to a default on a mortgage for approximately $30.0 million resulting in a gain on debt extinguishment of $18.3 million, of which the Company’s proportionate share was $4.1 million (Note 7).
Share Repurchase Program
During the first quarter of 2020, we repurchased 1,219,065 Common Shares for $22.4 million, inclusive of $0.1 million of fees, under the share repurchase program at a weighted average price per share of $18.29, under which $122.6 million remains available as of December 31, 2020.
Sources of Liquidity
Our primary sources of capital for funding our short-term (less than 12 months) and long-term (12 months and longer) liquidity needs include (i) the issuance of both public equity and OP Units, (ii) the issuance of both secured and unsecured debt, (iii) unfunded capital commitments from noncontrolling interests within our Funds, (iv) future sales of existing properties, (v) repayments of structured financing investments, and (vi) cash on hand and future cash flow from operating activities. Our cash on hand in our consolidated subsidiaries at December 31, 2020 totaled $19.2 million. Our remaining sources of liquidity are described further below.
ATM Program
We have an ATM Program (Note 10) that provides us an efficient and low-cost vehicle for raising public equity to fund our capital needs. Through this program, we have been able to effectively “match-fund” the required equity for our Core Portfolio and Fund acquisitions through the issuance of Common Shares over extended periods employing a price averaging strategy. In addition, from time to time, we have issued and intend to continue to issue, equity in follow-on offerings separate from our ATM Program. Net proceeds raised through our ATM Program and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-rata share of Fund acquisitions, and for general corporate purposes. During the year ended December 31, 2020, the Company did not sell any shares under its ATM Program. During the year ended December 31, 2019, the Company sold 5,164,055 shares under its ATM Program for gross proceeds of $147.7 million, or $145.5 million net of issuance costs, at a weighted-average gross price per share of $28.61.
Fund Capital
During the year ended December 31, 2020, Fund III called capital contributions totaling $11.7 million, Fund IV called capital contributions of $31.4 million and Fund V called capital contributions of $3.8 million, of which our aggregate proportionate share from all Funds was $10.9 million. At December 31, 2020, unfunded capital commitments from noncontrolling interests within our Funds III, IV and V were $1.4 million, $46.5 million and $242.0 million, respectively.
Asset Sales and Exchanges
During the year ended December 31, 2020, we disposed of two land parcels in our Core Portfolio for a total of $0.4 million. In addition, a Fund IV property, two Fund III parcels and a Fund IV parcel were sold or exchanged for a total of $22.0 million. These transactions resulted in an aggregate gain of $0.7 million of which the Company’s share was $0.3 million (Note 2).
During the second and fourth quarters of 2020, Mervyns II realized gains of approximately $22.8 million and $0.4 million, respectively, from its Investment in Albertsons for which the Company’s share was $6.6 million. The realized gains during the second quarter of 2020 resulted from the issuance and distribution of proceeds from a preferred equity investment and a sale of a portion of its investment in an initial public offering of Albertsons, both of which occurred in June 2020 (Note 4).
Structured Financing Repayments
As previously discussed, during the year ended December 31, 2020, the Company had no Structured Financing repayments; however, in two non-cash transactions one Core Portfolio note receivable for $38.7 million was converted to the remaining interest in the collateral on April 1, 2020 and another Fund note receivable for $33.8 million was converted into an ownership interest in improvements on a Fund development property on November 2, 2020 (Note 3).
A Core Portfolio note for $17.8 million matured on April 1, 2020 and one $5.3 million Fund note matured on July 1, 2020, but neither has been repaid. Scheduled maturities of Structured Financing loans include $14.0 million maturing during 2021 (Note 3).
Financing and Debt
As of December 31, 2020, we had $229.9 million of additional capacity under existing consolidated Core and Fund revolving debt facilities. In addition, at that date within our Core and Fund portfolios, we had 81 unleveraged consolidated properties with an aggregate carrying value of approximately $1.6 billion, although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.
HISTORICAL CASH FLOW
The following table compares the historical cash flow for the year ended December 31, 2020 with the cash flow for the year ended December 31, 2019 (in millions, totals may not add due to rounding):
Year Ended December 31,
Variance
Net cash provided by operating activities
$
102.6
$
127.2
$
(24.6
)
Net cash used in investing activities
(96.2
)
(397.1
)
300.9
Net cash (used in) provided by financing activities
(2.4
)
265.0
(267.4
)
Increase (decrease) in cash and restricted cash
$
3.9
$
(4.8
)
$
8.7
Operating Activities
Our operating activities provided $24.6 million less cash during the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to a decrease in cash receipts from tenants because of the COVID-19 Pandemic partially offset by the monetization of the Company's Investment in Albertsons in 2020, and $10.0 million from the collection of accrued interest on a note receivable in 2019.
Investing Activities
During the year ended December 31, 2020 as compared to the year ended December 31, 2019, our investing activities used $300.9 million less cash, primarily due to (i) $337.5 million less cash used in acquisition and lease of properties, (ii) $147.0 million less cash used in investments in unconsolidated affiliates, and (iii) $48.8 million less cash used in development, construction and property improvement costs. These sources of cash were partially offset by (i) $91.3 million less cash received from return of capital from unconsolidated affiliates, (ii) $67.8 million less
cash received from the disposition of properties, (iii) $55.4 million more cash used to issue notes receivable, and (iv) $15.3 million less cash received from proceeds of notes receivable.
Financing Activities
Our financing activities provided $267.4 million less cash during the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily from (i) $145.5 million less cash received from the sale of Common Shares, (ii) $110.7 million more cash provided from net borrowings, (iii) $69.9 million less cash used for distributions to noncontrolling interests, (iv) $43.7 million less cash used in dividends paid to Common Shareholders and (v) $22.4 million more cash used to repurchase Common Shares. These sources of cash were partially offset by (i) $109.0 million less cash provided from contributions from noncontrolling interests and (ii) $4.6 million less cash used for financing costs.
CONTRACTUAL OBLIGATIONS
Not applicable.
OFF-BALANCE SHEET ARRANGEMENTS
We have the following investments made through joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting. As such, our financial statements reflect our investment and our share of income and loss from, but not the individual assets and liabilities, of these joint ventures.
See Note 4 in the Notes to Consolidated Financial Statements, for a discussion of our unconsolidated investments. The Operating Partnership’s pro-rata share of unconsolidated non-recourse debt related to those investments is as follows (dollars in millions):
Operating Partnership
December 31, 2020
Investment
Ownership
Percentage
Pro-rata Share of
Mortgage Debt
Effective Interest Rate (a)
Maturity Date
650 Bald Hill Road
20.8
%
$
3.2
2.80
%
Apr 2021
Eden Square
22.8
%
5.4
2.30
%
Dec 2021
Promenade at Manassas (b)
22.8
%
6.3
1.90
%
Dec 2021
3104 M Street
20.0
%
0.9
3.75
%
Dec 2021
Family Center at Riverdale (b)
18.0
%
5.8
1.85
%
May 2022
Gotham Plaza
49.0
%
9.3
1.75
%
Jun 2023
Renaissance Portfolio
20.0
%
32.0
1.85
%
Aug 2023
Crossroads
49.0
%
31.0
3.94
%
Oct 2024
Tri-City Plaza (c)
18.1
%
7.0
2.05
%
Oct 2024
Frederick Crossing (c)
18.1
%
4.4
1.90
%
Dec 2024
Frederick County Square (c)
18.1
%
3.3
2.55
%
Jan 2025
840 N. Michigan
88.4
%
65.0
4.36
%
Feb 2025
Georgetown Portfolio
50.0
%
7.9
4.72
%
Dec 2027
Total
$
181.5
(a)
Effective interest rates incorporate the effect of interest rate swaps and caps that were in effect at December 31, 2020, where applicable.
(b)
The debt has two available 12-month extension options.
(c)
The debt has one available 12-month extension option.
CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements.
Impairment of Properties
On a periodic basis, we assess whether there are any indicators that the value of real estate assets, including undeveloped land and construction in progress, may be impaired. A property’s value is impaired only if the estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. The determination of undiscounted cash flows requires significant estimates by management. In management’s estimate of cash flows, it considers factors such as expected future sale of an asset or development alternatives, capitalization rates and the undiscounted future cash flows analysis, which is probability-weighted based upon management’s best estimate of the likelihood of the alternative courses of action. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the Company’s net income. To the extent an impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property.
The Company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments. These assessments have a direct impact on the Company’s estimates of the projected future cash flows, anticipated holding periods or market conditions change, its evaluation of the impairment charges may be different, and such differences could be material to the Company’s consolidated financial statements. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.
See Note 8 of the Notes to the Consolidated Financial Statements for a discussion of impairments recognized during the periods presented.
Investments in and Advances to Unconsolidated Joint Ventures
We periodically review our investment in unconsolidated joint ventures and other cost-method investments for other-than-temporary declines in market value. An impairment charge is recorded for a decline that is considered to be other-than-temporary as a reduction in the carrying value of the investment.
See Note 8 of the Notes to the Consolidated Financial Statements for a discussion of impairments recognized during the periods presented.
Bad Debts
We assess the collectability of our accounts receivable related to tenant revenues. We first apply the guidance under ASC Topic 842 “Leases” (“ASC 842”) in assessing our rents receivable: if collection of rents under specific operating leases is not probable, then we recognize the lesser of that lease’s rental income on a straight-line basis or cash received, plus variable rents as earned. Once this initial assessment is completed, we apply a general reserve, as provided under ASC 450-20, if applicable. If the financial condition of our tenants were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Rents receivable at December 31, 2020 and 2019 are shown net of an allowance for doubtful accounts of $45.4 million and $11.4 million, respectively. Rental income for the years ended December 31, 2020, 2019 and 2018 are reported net of adjustments to allowances for doubtful accounts of $46.8 million, $4.4 million and $2.5 million, respectively, reflecting additional reserves and write-offs during 2020 due to the impact of the COVID-19 Pandemic (Note 1).
Real Estate
Real estate assets are stated at cost less accumulated depreciation. 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. Construction in progress includes costs for significant property expansion and development. Depreciation is computed on the straight-line basis over estimated useful lives of 40 years for buildings, the shorter of the useful life or lease term for tenant improvements and five years for furniture, fixtures and equipment. Expenditures for maintenance and repairs are charged to operations as incurred.
Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below-market leases and acquired in-place leases) and acquired liabilities in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles - Goodwill and Other,” and allocate purchase price based on these assessments. When acquisitions of properties do not meet the criteria for business combinations, as is the case for the majority of the Company’s acquisitions, no goodwill is recorded and acquisition costs are capitalized. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.
Revenue Recognition and Accounts Receivable
Leases with tenants are accounted for as operating leases. Minimum rents are recognized on a straight-line basis over the non-cancelable term of the respective leases. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rent is recognized in the period when the tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to us of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the expenses are incurred.
We assess the collectability of our accounts receivable related to tenant revenues as described under the heading “Bad Debts” above.
Structured Financings
Real estate notes receivable investments and preferred equity investments (“Structured Financings”) are intended to be held to maturity and are carried at cost less an allowance for credit loss. Interest income from Structured Financings is recognized on the effective interest method over the expected life of the loan. Under the effective interest method, interest or fees to be collected at the origination of the Structured Financing investment is recognized over the term of the loan as an adjustment to yield.
Allowances for credit loss related to our Structured Financing investments are established based upon management’s quarterly review of the investments. In performing this review, management considers the estimated net recoverable value of the investment as well as other factors, including the fair value of any collateral, the amount and status of any senior debt, and the prospects for the borrower. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized from the Structured Financings may differ materially from the carrying value at the balance sheet date. Interest income recognition is generally suspended for investments when, in the opinion of management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the suspended investment becomes contractually current and performance is demonstrated to be resumed.
Notes receivable at December 31, 2020 and 2019 are reported net of an allowance for credit loss of $0.7 million and $0, respectively (Note 3).
Recently Issued Accounting Pronouncements
Reference is made to Note 1 for information about recently issued and recently adopted accounting pronouncements.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information as of December 31, 2020
Our primary market risk exposure is to changes in interest rates related to our mortgage and other debt. See Note 7 in the Notes to Consolidated Financial Statements, for certain quantitative details related to our mortgage and other debt.
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements. As of December 31, 2020, we had total mortgage and other notes payable of $1,770.1 million, excluding the unamortized premium of $0.5 million and unamortized debt issuance costs of $6.8 million, of which $1,143.2 million, or 64.6% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $626.9 million, or 35.4%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2020, we were party to 39 interest rate swap and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $988.6 million and $139.2 million of LIBOR-based variable-rate debt, respectively.
The following table sets forth information as of December 31, 2020 concerning our long-term debt obligations, including principal cash flows by scheduled maturity and weighted average interest rates of maturing amounts (dollars in millions):
Core Consolidated Mortgage and Other Debt
Year
Scheduled
Amortization
Maturities
Total
Weighted-Average
Interest Rate
$
3.5
$
30.0
$
33.5
3.3
%
3.6
138.4
142.0
1.5
%
2.9
367.9
370.8
1.4
%
2.7
7.3
10.0
4.7
%
2.8
60.0
62.8
4.0
%
Thereafter
10.4
117.2
127.6
2.9
%
$
25.9
$
720.8
$
746.7
Fund Consolidated Mortgage and Other Debt
Year
Scheduled
Amortization
Maturities
Total
Weighted-Average
Interest Rate
$
3.3
$
379.8
$
383.1
2.3
%
3.1
382.9
386.0
4.1
%
3.8
40.9
44.7
1.7
%
2.6
199.5
202.1
1.9
%
0.2
2.4
2.6
3.4
%
Thereafter
0.1
4.8
4.9
3.4
%
$
13.1
$
1,010.3
$
1,023.4
Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)
Year
Scheduled
Amortization
Maturities
Total
Weighted-Average
Interest Rate
$
1.3
$
15.5
$
16.8
2.3
%
1.2
5.8
7.0
1.9
%
1.2
40.6
41.8
1.8
%
0.9
39.7
40.6
3.4
%
0.3
68.3
68.6
4.3
%
Thereafter
0.5
6.2
6.7
4.7
%
$
5.4
$
176.1
$
181.5
Without regard to available extension options, in 2021, $416.6 million of our total consolidated debt and $16.8 million of our pro-rata share of unconsolidated outstanding debt will become due. In addition, $528.0 million of our total consolidated debt and $7.0 million of our pro-rata share of unconsolidated debt will become due in 2022. As it relates to the aforementioned maturing debt in 2021 and 2022, we have options to extend consolidated debt aggregating $231.3 million and $266.3 million, respectively; however, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rate, our interest expense would increase by approximately $9.7 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $3.6 million. Interest expense on our variable-rate debt of $626.9 million, net of variable to fixed-rate swap agreements currently in effect, as of December 31, 2020, would increase $6.3 million if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.4 million. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.
Based on our outstanding debt balances as of December 31, 2020, the fair value of our total consolidated outstanding debt would decrease by approximately $9.2 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding debt would increase by approximately $26.7 million.
As of December 31, 2020, and 2019, we had consolidated notes receivable of $101.5 million and $114.9 million, respectively. We determined the estimated fair value of our notes receivable by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing.
Based on our outstanding notes receivable balances as of December 31, 2020, the fair value of our total outstanding notes receivable would decrease by approximately $1.6 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding notes receivable would increase by approximately $1.6 million.
Summarized Information as of December 31, 2019
As of December 31, 2019, we had total mortgage and other notes payable of $1,717.9 million, excluding the unamortized premium of $0.7 million and unamortized debt issuance costs of $10.4 million, of which $1,403.3 million, or 81.7% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $314.6 million, or 18.3%, was variable-rate based upon LIBOR or Prime rates plus certain spreads. As of December 31, 2019, we were party to 40 interest rate swap and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $948.8 million and $143.3 million of LIBOR-based variable-rate debt, respectively.
Interest expense on our variable-rate debt of $314.6 million as of December 31, 2019, would have increased $3.1 million if LIBOR increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2019, the fair value of our total outstanding debt would have decreased by approximately $11.5 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $13.6 million.
Changes in Market Risk Exposures from December 31, 2019 to December 31, 2020
Our interest rate risk exposure from December 31, 2019, to December 31, 2020, has increased on an absolute basis, as the $314.6 million of variable-rate debt as of December 31, 2019, has increased to $626.9 million as of December 31, 2020. As a percentage of our overall debt, our interest rate risk exposure has increased as our variable-rate debt accounted for 18.3% of our consolidated debt as of December 31, 2019 compared to 35.4% as of December 31, 2020.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS.
ACADIA REALTY TRUST AND SUBSIDIARIES
Page
Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Acadia Realty Trust and Subsidiaries
Rye, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Acadia Realty Trust (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and financial statement schedules listed in the index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 22, 2021, expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Purchase price allocation
As described in Note 2 to the consolidated financial statements, during the year ended December 31, 2020, the Company acquired approximately $176.8 million of tangible and intangible real estate assets and $4.6 million of related intangible liabilities. The Company allocates the purchase price of real estate investments to the identifiable assets and liabilities acquired based on their relative fair values. The determination of fair value requires significant judgment by management and third-party valuation specialists to develop significant estimates and market-based assumptions used in the cash flow models.
We identified the purchase price allocation process as a critical audit matter. Auditing management’s judgments regarding market-based assumptions used in the discounted cash flow models including the forecasts of future revenue and operating expense growth rates, market capitalization rates and discount rates involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•
Testing the design and operating effectiveness of certain controls relating to management’s purchase price allocation process including controls over assessment of the reasonableness of market-based assumptions.
•
Assessing the reasonableness of significant market-based assumptions through benchmarking against third-party market data, industry metrics, and reviewing relevant supporting documentation.
•
Evaluating the accuracy of base-year information, where applicable, for the purposes of forecasting future revenues and expenses by comparing it to historical information.
•
Utilizing personnel with specialized knowledge and skill to assist in evaluating the reasonableness of the valuation methodologies and market-based assumptions used in the preparation of the purchase price allocations, including market rents and discount and capitalization rates.
Assessment of impairment of real estate and real estate related investments
As described in Notes 1, 2 and 6 to the consolidated financial statements, as of December 31, 2020, the Company’s net investment balance in real estate was $3.5 billion, and the carrying value of intangible lease assets and liabilities was $100.7 million and $76.4 million, respectively. These amounts represent the Company’s ownership interest in 187 properties. In addition, the Company’s carrying value of right-of-use assets, investments in unconsolidated affiliates and structured loan portfolio was $0.1 billion and, $0.3 billion, and $0.1 billion, respectively. The Company tests the recoverability of the real estate and real estate related investments whenever events or changes in circumstances indicate that amounts may not be recoverable. As a result of the COVID-19 pandemic, during the year ended December 31, 2020, the Company identified impairment indicators, which resulted in the Company recording impairment charges of $85.6 million related to its real estate and real estate related investments. Significant management judgment is involved in determining if impairment indicators exist, assessing investments for recoverability and measuring fair value of the real estate and real estate related investments.
We identified the assessment of impairment of the real estate and real estate related investments as a critical audit matter due to the complexity of management’s judgments relating to: (i) assessment of impairment indicators, and (ii) assessment of inputs and assumptions used in the expected future cash flows underlying the fair values of the real estate and real estate related investments, given the inherent uncertainties that exist related to the Company’s forecasts and how various economic and other factors, including the projected impact from the COVID-19 pandemic, could affect the Company’s forecasted assumptions of revenue and expenses included in the expectations of future cash flows. Auditing management’s judgments relating to the existence of impairment indicators and market-based assumptions used in the cash flow models, including future revenue and operating expense growth rates, market rent assumptions, market capitalization rates, discount rates, and holding periods, involve especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge required.
The primary procedures we performed to address this critical audit matter included:
•
Testing the design and operating effectiveness of the control related to management's assessment of the potential impairment of real estate assets which included management's judgment regarding which properties required recoverability tests to be performed, as well as the assumptions management used in performing the recoverability tests.
•
Evaluating management's assessment of potential impairment indicators which could result in impairment, including changes in use of property, changes in occupancy, nature of the property and property performance against historical operating results.
•
Testing the assumptions used by management in determining which properties require a recoverability test and evaluating management's assumptions, including future revenue and operating expense growth rates, market rent assumptions, terminal capitalization rates, discount rates, holding periods and other inputs used in performing the recoverability tests.
•
Utilizing professionals with specialized skills and knowledge to assist in evaluating the reasonableness of the market-based assumptions utilized by the management (including capitalization rates, market rents and projected growth rates for revenues and expenses) for certain properties under development and pre-stabilized properties, for which impairment indicators have been identified.
•
Utilizing professionals with specialized skills and knowledge to assist in evaluating the reasonableness of the market-based assumptions utilized by the management (including capitalization rates, market rents and projected growth rates for revenues and expenses) for certain properties under development and pre-stabilized properties, for which impairment indicators have been identified.
Assessment of the recoverability of billed and unbilled rents receivable
As described in Note 1 to the consolidated financial statements, as of December 31, 2020, the Company’s rents receivable balance was $44.1 million, net of allowance for doubtful accounts of $45.4 million. During the year ended December 31, 2020, the Company recorded credit losses of $46.8 million related to its billed and unbilled rents receivable. The Company assesses the collectability of accounts receivable related to tenant revenues. The Company evaluates each operating lease and records a reserve on billed and unbilled receivables related to those operating leases for which it has determined collectability is not probable. Significant management’s judgment is involved in determining the likelihood of collectability of billed and unbilled rents receivable.
We identified the assessment of the recoverability of billed and unbilled rents receivable as a critical audit matter due to the complexity of management’s judgments relating to the assessment of likelihood of collectability of rents receivable, including the projected impact from the COVID-19 pandemic. Auditing management’s estimates with respect to the recognized reserve balances involve especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
Testing the design and operating effectiveness of the Company’s controls relating to identification of tenant-specific non-recoverable billed and unbilled receivables, including evaluating the likelihood of collectability of receivables.
•
Evaluating the reasonableness of management’s assumptions used in determining the likelihood of collectability of the receivables through review of the underlying support for management’s conclusion.
•
Testing the completeness and accuracy of the data used in determination of the reserves.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2005.
New York, New York
February 22, 2021
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
(dollars in thousands, except per share amounts)
ASSETS
Investments in real estate, at cost
Operating real estate, net
$
3,260,139
$
3,295,907
Real estate under development
247,349
253,402
Net investments in real estate
3,507,488
3,549,309
Notes receivable, net
101,450
114,943
Investments in and advances to unconsolidated affiliates
249,807
305,097
Other assets, net
173,809
190,658
Right-of-use assets - operating leases, net
76,268
60,006
Cash and cash equivalents
19,232
15,845
Restricted cash
14,692
14,165
Rents receivable
44,136
59,091
Total assets
$
4,186,882
$
4,309,114
LIABILITIES
Mortgage and other notes payable, net
$
1,125,356
$
1,170,076
Unsecured notes payable, net
500,083
477,320
Unsecured line of credit
138,400
60,800
Accounts payable and other liabilities
269,911
314,754
Lease liability - operating leases, net
88,816
56,762
Dividends and distributions payable
27,075
Distributions in excess of income from, and investments in, unconsolidated affiliates
15,616
15,362
Total liabilities
2,138,329
2,122,149
Commitments and contingencies
EQUITY
Acadia Shareholders' Equity
Common shares, $0.001 par value, authorized 200,000,000 shares, issued and outstanding 86,268,303 and 87,050,465 shares, respectively
Additional paid-in capital
1,683,165
1,706,357
Accumulated other comprehensive loss
(74,891
)
(31,175
)
Distributions in excess of accumulated earnings
(167,046
)
(132,961
)
Total Acadia shareholders’ equity
1,441,314
1,542,308
Noncontrolling interests
607,239
644,657
Total equity
2,048,553
2,186,965
Total liabilities and equity
$
4,186,882
$
4,309,114
The accompanying notes are an integral part of these consolidated financial statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
(in thousands except per share amounts)
Revenues
Rental income
$
251,002
$
291,190
$
254,508
Other
4,482
4,137
5,173
Total revenues
255,484
295,327
259,681
Operating expenses
Depreciation and amortization
149,793
125,443
117,549
General and administrative
36,055
35,416
34,343
Real estate taxes
43,505
39,315
36,712
Property operating
56,595
51,153
43,536
Impairment charges
85,598
1,721
-
Total operating expenses
371,546
253,048
232,140
Gain on disposition of properties
30,324
5,140
Operating (loss) income
(115,379
)
72,603
32,681
Equity in (losses) earnings of unconsolidated affiliates
(1,237
)
8,922
9,302
Interest income
8,979
7,988
13,231
Realized and unrealized holding gains on investments and other
113,930
6,947
-
Interest expense
(72,060
)
(73,788
)
(69,978
)
(Loss) income from continuing operations before income taxes
(65,767
)
22,672
(14,764
)
Income tax provision
(271
)
(1,468
)
(934
)
Net (loss) income
(66,038
)
21,204
(15,698
)
Net loss attributable to noncontrolling interests
57,279
31,841
47,137
Net (loss) income attributable to Acadia
$
(8,759
)
$
53,045
$
31,439
Basic and diluted (loss) earnings per share
$
(0.10
)
$
0.62
$
0.38
The accompanying notes are an integral part of these consolidated financial statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Year Ended December 31,
(in thousands)
Net (loss) income
$
(66,038
)
$
21,204
$
(15,698
)
Other comprehensive loss:
Unrealized loss on valuation of swap agreements
(74,236
)
(35,674
)
(2,659
)
Reclassification of realized interest on swap agreements
15,203
(872
)
Other comprehensive loss
(59,033
)
(36,546
)
(2,588
)
Comprehensive loss
(125,071
)
(15,342
)
(18,286
)
Comprehensive loss attributable to noncontrolling interests
72,596
36,696
47,627
Comprehensive (loss) income attributable to Acadia
$
(52,475
)
$
21,354
$
29,341
The accompanying notes are an integral part of these consolidated financial statements.
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31, 2020, 2019 and 2018
Acadia Shareholders
(in thousands, except per share amounts)
Common
Shares
Share
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Distributions
in Excess of
Accumulated
Earnings
Total
Common
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
Balance at January 1, 2020
87,050
$
$
1,706,357
$
(31,175
)
$
(132,961
)
$
1,542,308
$
644,657
$
2,186,965
Cumulative effect of change in accounting principle (Note 1)
-
-
-
-
(389
)
(389
)
(11
)
(400
)
Acquisition of noncontrolling interest
-
-
(15,330
)
-
-
(15,330
)
15,918
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
-
6,544
-
-
6,544
(6,544
)
-
Repurchase of Common Shares
(1,219
)
(1
)
(22,385
)
-
-
(22,386
)
-
(22,386
)
Dividends/distributions declared ($0.29 per Common Share/OP Unit)
-
-
-
-
(24,937
)
(24,937
)
(2,218
)
(27,155
)
Employee and trustee stock compensation, net
-
-
-
10,130
10,912
Noncontrolling interest distributions
-
-
-
-
-
-
(27,574
)
(27,574
)
Noncontrolling interest contributions
-
-
-
-
-
-
52,674
52,674
Comprehensive (loss) income
-
-
-
(43,716
)
(8,759
)
(52,475
)
(72,596
)
(125,071
)
Reallocation of noncontrolling interests
-
-
7,197
-
-
7,197
(7,197
)
-
Balance at December 31, 2020
86,269
$
$
1,683,165
$
(74,891
)
$
(167,046
)
$
1,441,314
$
607,239
$
2,048,553
Balance at January 1, 2019
81,557
$
$
1,548,603
$
$
(89,696
)
$
1,459,505
$
622,442
$
2,081,947
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
-
5,104
-
-
5,104
(5,104
)
-
Issuance of Common Shares
5,164
145,493
-
-
145,498
-
145,498
Dividends/distributions declared ($1.13 per Common Share/OP Unit)
-
-
-
-
(96,310
)
(96,310
)
(7,124
)
(103,434
)
Employee and trustee stock compensation, net
-
-
-
10,411
10,957
Noncontrolling interest distributions
-
-
-
-
-
-
(94,289
)
(94,289
)
Noncontrolling interest contributions
-
-
-
-
-
-
161,628
161,628
Comprehensive (loss) income
-
-
-
(31,691
)
53,045
21,354
(36,696
)
(15,342
)
Reallocation of noncontrolling interests
-
-
6,611
-
-
6,611
(6,611
)
-
Balance at December 31, 2019
87,050
$
$
1,706,357
$
(31,175
)
$
(132,961
)
$
1,542,308
$
644,657
$
2,186,965
Balance at January 1, 2018
83,708
$
$
1,596,514
$
2,614
$
(32,013
)
$
1,567,199
$
648,440
$
2,215,639
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership
-
2,068
-
-
2,068
(2,068
)
-
Dividends/distributions declared ($1.09 per Common Share/OP Unit)
-
-
-
-
(89,122
)
(89,122
)
(6,888
)
(96,010
)
Employee and trustee stock compensation, net
-
-
-
12,374
12,948
Repurchase of Common Shares
(2,294
)
(2
)
(55,109
)
-
-
(55,111
)
-
(55,111
)
Noncontrolling interest distributions
-
-
-
-
-
-
(24,793
)
(24,793
)
Noncontrolling interest contributions
-
-
-
-
-
-
47,560
47,560
Comprehensive income
-
-
-
(2,098
)
31,439
29,341
(47,627
)
(18,286
)
Reallocation of noncontrolling interests
-
-
4,556
-
-
4,556
(4,556
)
-
Balance at December 31, 2018
81,557
$
$
1,548,603
$
$
(89,696
)
$
1,459,505
$
622,442
$
2,081,947
The accompanying notes are an integral part of these consolidated financial statements.
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
$
(66,038
)
$
21,204
$
(15,698
)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
149,793
125,443
117,549
Straight-line rents
(5,096
)
(5,198
)
(8,616
)
Noncash lease expense
3,392
-
-
Net unrealized holding gains on investments
(72,391
)
-
-
Distributions of operating income from unconsolidated affiliates
3,286
11,273
15,556
Equity in earnings and gains of unconsolidated affiliates
1,237
(8,922
)
(9,302
)
Stock compensation expense
10,912
10,957
12,948
Amortization of financing costs
5,169
7,577
6,008
Impairment charges
85,598
1,721
-
Gain on disposition of properties
(683
)
(30,324
)
(5,140
)
Gain on debt extinguishment
(18,339
)
-
-
Allowance for credit loss
24,770
2,625
(87
)
Adjustments to straight-line rent reserves
22,074
1,776
2,620
Deferred gain on tax credits
-
(5,034
)
-
Other, net
(8,753
)
(11,627
)
(11,768
)
Changes in assets and liabilities:
Other liabilities
(4,208
)
(4,466
)
6,161
Lease liability - operating leases
(1,579
)
-
-
Prepaid expenses and other assets
8,198
(7,168
)
Rents receivable, net
(29,810
)
(3,961
)
Accounts payable and accrued expenses
3,199
1,632
(3,026
)
Net cash provided by operating activities
102,565
127,177
96,076
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate
(21,208
)
(319,673
)
(147,985
)
Acquisition of leasehold interests
-
(39,031
)
-
Development, construction and property improvement costs
(40,483
)
(89,270
)
(94,834
)
Proceeds from the disposition of properties, net
20,930
88,738
63,866
Investments in and advances to unconsolidated affiliates and other
(4,291
)
(151,281
)
(3,161
)
Return of capital from unconsolidated affiliates and other
14,686
105,999
26,338
Issuance of or advances on notes receivable
(59,000
)
(3,608
)
(3,002
)
Proceeds from notes receivable
-
15,250
26,000
Return of deposits for properties under contract
2,870
1,692
Payment of deferred leasing costs
(7,979
)
(7,051
)
(6,106
)
Change in control of previously unconsolidated affiliate
-
Net cash used in investing activities
(96,208
)
(397,057
)
(136,619
)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes
(55,449
)
(168,211
)
(81,726
)
Principal payments on unsecured debt
(136,490
)
(521,600
)
(632,300
)
Proceeds received on mortgage and other notes
7,261
326,268
187,173
Proceeds from unsecured debt
236,804
526,400
648,800
Payments of finance lease obligations
(903
)
(2,749
)
-
(Repurchase) proceeds from the sale of Common Shares
(22,386
)
145,498
(55,111
)
Capital contributions from noncontrolling interests
52,674
161,628
47,560
Distributions to noncontrolling interests
(31,461
)
(101,370
)
(31,568
)
Dividends paid to Common Shareholders
(50,182
)
(93,902
)
(88,887
)
Deferred financing and other costs
(2,311
)
(6,920
)
(4,219
)
Net cash (used in) provided by financing activities
(2,443
)
265,042
(10,278
)
Increase (decrease) in cash and restricted cash
3,914
(4,838
)
(50,821
)
Cash of $15,845, $21,268 and $74,823 and restricted cash of $14,165, $13,580 and $10,846, respectively, beginning of year
30,010
34,848
85,669
Cash of $19,232, $15,845 and $21,268 and restricted cash of $14,692, $14,165 and $13,580, respectively, end of year
$
33,924
$
30,010
$
34,848
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Year Ended December 31,
(in thousands)
Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of capitalized interest of $7,110 and $12,586 and $5,625 respectively
$
72,392
$
53,586
$
61,832
Cash (received) paid for income taxes, net of refunds
$
(329
)
$
$
1,227
Supplemental disclosure of non-cash investing and financing activities
Assumption of accounts payable and accrued expenses through acquisition of real estate
$
$
4,666
$
2,597
Notes receivable exchanged for real estate
$
72,430
$
13,530
$
22,201
Adjustment to equity as a result of the CECL implementation
$
$
-
$
-
Distribution declared and payable on January 15, 2020
$
-
$
26,914
$
-
Right-of-use assets, finance leases (modified) obtained in exchange for finance lease liabilities
$
(70,427
)
$
16,349
$
-
Right-of-use assets, finance leases obtained in exchange for assets under capital lease
$
-
$
76,965
$
-
Right-of-use assets, operating leases obtained in exchange for operating lease liabilities
$
33,189
$
57,165
$
-
Capital lease obligation exchanged for finance lease liability
$
-
$
71,111
$
-
Other liabilities exchanged for operating lease liabilities
$
-
$
$
-
Assumption of debt through investments in unconsolidated affiliates
$
-
$
4,688
$
-
Debt exchanged for deferred gain on tax credits
$
-
$
(5,262
)
$
-
Other assets exchanged for deferred gain on tax credits
$
-
$
$
-
Right of use assets, operating leases modified in exchange for finance lease liabilities
$
(1,432
)
$
-
$
-
Change in control of previously unconsolidated (consolidated) investment
Increase in real estate
$
(135,190
)
$
$
(31,836
)
Decrease in investments in and advances to unconsolidated affiliates
96,816
(1,189
)
35,881
Change in other assets and liabilities
1,238
(3,472
)
Acquisition of noncontrolling interest asset
(588
)
-
-
Decrease in notes receivable
38,674
-
-
Decrease in right-of-use assets, finance leases
-
11,051
-
Decrease in finance lease liability
-
(10,702
)
-
Increase in cash and restricted cash upon change of control
$
$
-
$
The accompanying notes are an integral part of these consolidated financial statements.
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
Acadia Realty Trust, a Maryland real estate investment trust (collectively with its subsidiaries, the “Company”) is a fully-integrated equity real estate investment trust (“REIT”) focused on the ownership, acquisition, development, and management of retail properties located primarily in high-barrier-to-entry, supply-constrained, densely-populated metropolitan areas in the United States.
All of the Company’s assets are held by, and all of its operations are conducted through, Acadia Realty Limited Partnership (the “Operating Partnership”) and entities in which the Operating Partnership owns an interest. As of December 31, 2020 and 2019, the Company controlled approximately 95% and 94% of the Operating Partnership as the sole general partner and is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Preferred OP Units”) and employees who have been awarded restricted Common OP Units (“LTIP Units”) as long-term incentive compensation (Note 13). Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest, par value $0.001 per share of the Company (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.”
As of December 31, 2020, the Company has ownership interests in 131 properties within its core portfolio, which consist of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its funds (“Core Portfolio”). The Company also has ownership interests in 56 properties within its opportunity funds, Acadia Strategic Opportunity Fund II, LLC (“Fund II”), Acadia Strategic Opportunity Fund III LLC (“Fund III”), Acadia Strategic Opportunity Fund IV LLC (“Fund IV”), and Acadia Strategic Opportunity Fund V LLC (“Fund V” and collectively with Fund II, Fund III, and Fund IV, the “Funds”). The 187 Core Portfolio and Fund properties primarily consist of street and urban retail, and suburban shopping centers. In addition, the Company, together with the investors in the Funds, invested in operating companies through Acadia Mervyn Investors I, LLC (“Mervyns I,” which was liquidated in 2018) and Acadia Mervyn Investors II, LLC (“Mervyns II”), all on a non-recourse basis. The Company consolidates the Funds as it has (i) the power to direct the activities that most significantly impact the Funds’ economic performance, (ii) is obligated to absorb the Funds’ losses and (iii) has the right to receive benefits from the Funds that could potentially be significant.
The Operating Partnership is the sole general partner or managing member of the Funds and Mervyns II and earns fees or priority distributions for asset management, property management, construction, development, leasing, and legal services. Cash flows from the Funds and Mervyns II are distributed pro-rata to their respective partners and members (including the Operating Partnership) until each receives a certain cumulative return (“Preferred Return”) and the return of all capital contributions. Thereafter, remaining cash flow is distributed 20% to the Operating Partnership (“Promote”) and 80% to the partners or members (including the Operating Partnership). All transactions between the Funds and the Operating Partnership have been eliminated in consolidation.
The following table summarizes the general terms and Operating Partnership’s equity interests in the Funds and Mervyns II (dollars in millions):
Entity
Formation
Date
Operating
Partnership
Share of
Capital
Capital Called as of
December 31, 2020 (b)
Unfunded
Commitment (b, c)
Equity Interest
Held By
Operating
Partnership (a)
Preferred
Return
Total Distributions
as of
December 31,
2020 (b, c)
Fund II and Mervyns II (c)
6/2004
28.33
%
$
369.6
$
15.7
28.33
%
%
$
169.8
Fund III
5/2007
24.54
%
448.1
1.9
24.54
%
%
568.8
Fund IV
5/2012
23.12
%
469.5
60.5
23.12
%
%
193.1
Fund V
8/2016
20.10
%
217.1
302.9
20.10
%
%
24.6
(a)
Amount represents the current economic ownership at December 31, 2020, which could differ from the stated legal ownership based upon the cumulative preferred returns of the respective Fund.
(b)
Represents the total for the Funds, including the Operating Partnership and noncontrolling interests’ shares.
(c)
During April 2018, a distribution of $15.0 million was made to the Fund II investors, including $4.3 million to the Operating Partnership, which amount was re-contributed to Fund II in April 2020. During June 2020, a distribution was made by Mervyn’s II to its investors which was re-contributed to Fund II in the amount of $7.5 million. During August 2020, a recallable distribution of $15.7 million was made by Mervyn’s II to its investors, of which $4.5 million was the Company’s share.
COVID-19 Pandemic Impacts
Beginning in March 2020, the COVID-19 Pandemic has adversely affected economic activity and significantly decreased consumer activity, both on a global and domestic level. The COVID-19 Pandemic and government responses created disruption in global supply chains and adversely impacting many industries, including the domestic retail sectors in which the Company’s tenants operate. The COVID-19 Pandemic could continue to have a material adverse impact on economic and market conditions and trigger a period of global economic slowdown. Under governmental restrictions and guidance, certain retailers were considered “essential businesses” and were permitted to remain fully operating during the COVID-19 Pandemic, while other “non-essential businesses” were ordered to decrease or close operations for an indeterminate period of time to protect their employees and customers from the spread of the virus. These disruptions, which continue to a lesser extent as of the date of this Report, have impacted the collectability of rent from the Company’s affected tenants. The Company cannot estimate with reasonable certainty which currently operating tenants will remain open or if and when non-operating retailers will re-open for business as the COVID-19 Pandemic progresses. While the Company considers disruptions related to the COVID-19 Pandemic to be temporary, if the disruptions are protracted or escalate, they may have a material, adverse effect on the Company’s revenues, results of operations, financial condition, and liquidity in future periods.
Tenant Operating Status (Unaudited) - The following table illustrates the percentage of the Company’s consolidated and unconsolidated annualized base rents (“ABR”) derived from stores which were open or partially open for business as of the dates indicated:
Percentage of Tenants Open for Business as of
June 30,
September 30,
December 31 ,
Core
%
%
%
Fund
%
%
%
Rent Collections -The following table depicts collections of pre-COVID billings (original contract rents without regard to deferral or abatement agreements) and excludes the impact of any security deposits applied against tenant accounts as of the dates shown:
Collections as of:
September 30, 2020 for
December 31, 2020 for
Second Quarter 2020
Third Quarter 2020
Second Quarter 2020
Third Quarter 2020
Fourth Quarter 2020
Core
%
%
%
%
%
Fund
%
%
%
%
%
Earnings Impact
- During the year ended December 31, 2020, the Company assessed its reserves for collection losses with respect to its billed receivables and straight-line rents receivable which were negatively impacted by the COVID-19 Pandemic. The Company also entered into agreements with selected tenants for rent forgiveness related to the COVID-19 Pandemic which were recorded in the period the rent was forgiven. In addition, the Company determined that several properties were impaired at December 31, 2020 and March 31, 2020 (Note 8). These collection losses, and rent abatements were recorded as a reduction of rental income in the consolidated statements of operations. The rental income reductions and impairment charges impacted net earnings and segment performance as follows:
Year Ended December 31, 2020
Consolidated
Non-Controlling Interests
Unconsolidated
Attributable to Acadia
Credit Loss - Billed Rents
Core
$
12,870
$
(37
)
$
1,564
$
14,397
Funds
11,901
(9,969
)
1,017
2,949
Total
24,771
(10,006
)
2,581
17,346
Straight - Line Rent Reserves
Core
8,413
(86
)
8,836
Funds
13,660
(11,184
)
1,263
3,739
Total
22,073
(11,270
)
1,772
12,575
Rent Abatements
Core
1,616
-
2,484
Funds
(381
)
Total
2,035
(381
)
2,578
Impairment charges
Core
-
-
Funds
85,179
(65,004
)
-
20,175
Total
85,598
(65,004
)
-
20,594
COVID Earnings Impact
Core
23,318
(123
)
2,941
26,136
Funds
111,159
(86,538
)
2,336
26,957
Total
$
134,477
$
(86,661
)
$
5,277
$
53,093
Other Impacts
•
Rent Concession Agreements - During the year ended December 31, 2020, the Company executed 288 rent concession arrangements with tenants including 226 agreements for rent deferral, 60 agreements for rent abatements and two modification. Of these deferral agreements, 217 were accounted for as if no changes to the contract were made and therefore there were no changes to the current or future recognition of revenue and $10.7 million of deferred receivables, excluding allowance for doubtful accounts of $2.4 million, are included in Rents receivable in the consolidated balance sheet at December 31, 2020. The impact of the rent abatements is depicted in the table above.
•
Occupancy (Unaudited) - At December 31, 2020, the Company’s pro rata Core and Fund leased occupancy rates were 90.9% and 88.3%, respectively, compared to 91.1% and 89.8%, respectively, at September 30, 2020 reflecting primarily non-renewals and terminations due to the COVID-19 Pandemic.
•
Bankruptcy Risk - Through December 31, 2020 there have been numerous bankruptcies of national retailers, some of which are tenants of the Company. Of these bankruptcies, the Core Portfolio has four operating stores, with ABR attributable to Acadia totaling $1.2 million, or 0.9% of Core ABR, and the Fund Portfolio has six operating stores, with ABR attributable to Acadia totaling $0.1 million, or 0.7% of Fund ABR, for which it is possible that these leases may be rejected in the future. During the fourth quarter of 2020, five Core Portfolio and 11 Fund tenants emerged from bankruptcy and resumed their leases with Acadia.
•
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES
Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by the COVID-19 Pandemic. The Company did not borrow any funds under the SBA Paycheck Protection Program and CARES Act did not have a material effect on the Company, its financial condition, results of operations, or liquidity for 2020.
See Note 16 for updates to some of these results through January 31, 2021.
Basis of Presentation
Segments
At December 31, 2020, the Company had three reportable operating segments: Core Portfolio, Funds and Structured Financing. The Company’s chief operating decision maker may review operational and financial data on a property-level basis and does not differentiate properties on a geographical basis for purposes of allocating resources or capital.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of the Company and its investments in partnerships and limited liability companies in which the Company has control in accordance with FASB Accounting Standards Codification Topic 810 “Consolidation.” The ownership interests of other investors in these entities are recorded as noncontrolling interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net (loss) income.
Use of Estimates
GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition and the collectability of notes receivable and rents receivable. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
Reclassifications
Certain prior year amounts with regard to right-of-use assets - operating leases, lease liabilities - operating leases and credit losses have been reclassified to conform to the current year presentation. These reclassifications had no effect on the reported results of operations.
Summary of Significant Accounting Policies
Real Estate
Land, buildings, and personal property are carried at cost less accumulated depreciation. Improvements and significant renovations that extend the useful life of the properties are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Real estate under development includes costs for significant property expansion and development.
Depreciation is computed on the straight-line basis over estimated useful lives of the assets as follows:
Buildings and improvements Useful lives of 40 years for buildings and 15 years for improvements
Furniture and fixtures Useful lives, ranging from five years to 10 years
Tenant improvements Shorter of economic life or lease terms
Purchase Accounting - Upon acquisitions of real estate, the Company assesses the fair value of acquired assets and assumed liabilities (including land, buildings and improvements, and identified intangibles such as above- and below-market leases and acquired in-place leases) and acquired liabilities in accordance with ASC Topic 805, “Business Combinations” and ASC Topic 350 “Intangibles - Goodwill and Other,” and allocates the acquisition price based on these assessments. When acquisitions of properties do not meet the criteria for business combinations, no goodwill is recorded and acquisition costs are capitalized.
The Company assesses fair value of its tangible assets acquired and assumed liabilities based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information at the measurement period. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.
In determining the value of above- and below-market leases, the Company estimates the present value difference between contractual rent obligations and estimated market rate of leases at the time of the transaction. To the extent there were fixed-rate options at below-market rental rates, the Company included these along with the current term below-market rent in arriving at the fair value of the acquired leases. The
discounted difference between contract and market rents is being amortized to rental income over the remaining applicable lease term, inclusive of any option periods.
In determining the value of acquired in-place leases, the Company considers market conditions at the time of the transaction and values the costs to execute similar leases during the expected lease-up period from vacancy to existing occupancy, including carrying costs. The value assigned to in-place leases and tenant relationships is amortized over the estimated remaining term of the leases. If a lease were to be terminated prior to its scheduled expiration, all unamortized costs relating to that lease would be written off.
The Company estimates the value of any assumption of mortgage debt based on market conditions at the time of acquisitions including prevailing interest rates, terms and ability to obtain financing for a similar asset. Mortgage debt discounts or premiums are amortized into interest expense over the remaining term of the related debt instrument.
Real Estate Under Development - The Company capitalizes certain costs related to the development of real estate. Interest and real estate taxes incurred during the period of the construction, expansion or development of real estate are capitalized and depreciated over the estimated useful life of the building. The Company will cease the capitalization of these costs when construction activities are substantially completed and the property is available for occupancy by tenants, but no later than one year from the completion of major construction activity at which time the project is placed in service and depreciation commences. If the Company suspends substantially all activities related to development of a qualifying asset, the Company will cease capitalization of interest and taxes until activities are resumed.
Real Estate Impairment - The Company reviews its real estate, real estate under development and right-of-use assets for impairment when there is an event or a change in circumstances that indicates that the carrying amount may not be recoverable. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying costs to fair value. The determination of anticipated undiscounted cash flows is inherently subjective, requiring significant estimates made by management, and considers the most likely expected course of action at the balance sheet date based on current plans, intended holding periods and available market information. If the Company is evaluating the potential sale of an asset, the undiscounted future cash flows analysis is probability-weighted based upon management’s best estimate of the likelihood of the alternative courses of action as of the balance sheet date. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. If an impairment is indicated, an impairment loss is recognized based on the excess of the carrying amount of the asset over its estimated fair value. See Note 8 for information about impairment charges recorded during the periods presented.
Dispositions of Real Estate - The Company recognizes property sales in accordance with ASC Topic 970 “Real Estate.” Sales of real estate include the sale of land, operating properties and investments in real estate joint ventures. Beginning January 1, 2018, gains on sale of investment properties are recognized, and the related real estate derecognized, when the Company has satisfied its performance obligations by transferring control of the property. Typically, the timing of payment and satisfaction of performance obligations occur simultaneously on the disposition date upon transfer of the property’s ownership.
Real Estate Held for Sale - The Company generally considers assets to be held for sale when it has entered into a contract to sell the property, all material due diligence requirements have been satisfied, and management believes it is probable that the disposition will occur within one year. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value, less cost to sell.
Notes Receivable
Notes receivable include certain loans that are held for investment and are collateralized by real estate-related investments and may be subordinate to other senior loans. Notes receivable are reported net of allowance for credit loss and are recorded at stated principal amounts or at initial investment less accretive yield for loans purchased at a discount, which is accreted over the life of the note. The Company defers loan origination and commitment fees, net of origination costs, and amortizes them over the term of the related loan. The Company evaluates the collectability of both principal and interest based upon an assessment of the underlying collateral value to determine whether it is impaired. Allowance for credit loss represents management’s estimate of future losses based on national historical economic loss rates for similar obligations, management’s estimate of future economic impacts and factors specific to the borrower. Certain of the Company’s loans are considered “collateral dependent” in that settlement of the amount is likely to be achieved by obtaining access to the collateral (e.g. notes in default). The same valuation techniques are used to value the collateral for such collateral dependent instruments as those used to determine the fair value of real estate investments for impairment purposes. Given the small number of notes outstanding, the Company believes the characteristics of its notes are not sufficiently similar to allow an evaluation as a group for credit loss allowance. As such, all of the Company’s notes are evaluated individually for this purpose. Interest income on performing notes is accrued as earned. A note is placed on non-accrual status when, based upon current information and events, it is probable that the Company will not be able to collect all amounts due according to the existing contractual terms. Income accrual is generally suspended for loans when recovery of income and principal becomes doubtful. Interest received is then recorded as a reduction in the outstanding principal balance until the accrual is resumed when it is probable that the Company will be able to collect amounts due according to the contractual terms of the notes.
Investments in and Advances to Unconsolidated Joint Ventures
Some of the Company’s joint ventures obtain non-recourse third-party financing on their property investments, contractually limiting the Company’s exposure to losses. The Company recognizes income for distributions in excess of its investment where there is no recourse to the Company and no intention or obligation to contribute additional capital. For investments in which there is recourse to the Company or an obligation or intention to contribute additional capital exists, distributions in excess of the investment are recorded as a liability.
When characterizing distributions from equity investees within the Company's consolidated statements of cash flows, all distributions received are first applied as returns on investment to the extent there are cumulative earnings related to the respective investment and are classified as cash inflows from operating activities. If cumulative distributions are in excess of cumulative earnings, distributions are considered return of investment. In such cases, the distribution is classified as cash inflows from investing activities.
To the extent that the Company’s carrying basis in an unconsolidated affiliate is different from the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in the Company’s share of equity in (loss) earnings of unconsolidated affiliates the joint venture.
The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment, is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the periods presented there were no impairment charges related to the Company’s investments in unconsolidated joint ventures.
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 equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed the limits insured by the Federal Deposit Insurance Corporation.
Restricted Cash
Restricted cash consists principally of cash held for real estate taxes, construction costs, property maintenance, insurance, minimum occupancy and property operating income requirements at specific properties as required by certain loan agreements.
Deferred Costs
External fees and costs paid in the successful negotiation of leases are deferred and amortized on a straight-line basis over the terms of the respective leases. External fees and costs incurred in connection with obtaining financing are deferred and amortized as a component of interest expense over the term of the related debt obligation on a straight-line basis, which approximates the effective interest method. Effective January 1, 2019, internal leasing costs are no longer being capitalized as discussed further below under ASU 2016-02.
Derivative Instruments and Hedging Activities
The Company measures derivative instruments at fair value and records them as assets or liabilities, depending on its rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive (loss) income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.
Although the Company's derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheets. The Company does not use derivatives for trading or speculative purposes. For the periods presented, all of the Company's derivatives qualified and were designated as cash flow hedges, and none of its derivatives were deemed ineffective.
Noncontrolling Interests
Noncontrolling interests represent the portion of equity that the Company does not own in those entities it consolidates. The Company identifies its noncontrolling interests separately within the equity section on the Company’s consolidated balance sheets. The amounts of
consolidated net earnings attributable to the Company and to the noncontrolling interests are presented separately on the Company’s consolidated statements of operations. Noncontrolling interests also include amounts related to common and preferred OP Units issued to unrelated third parties in connection with certain property acquisitions. In addition, the Company periodically issues common OP Units and LTIPs to certain employees of the Company under its share-based incentive program. Unit holders generally have the right to redeem their units for Common Shares subject to blackout and other limitations. Common and restricted OP Units are included in the caption Noncontrolling interest within the equity section on the Company’s consolidated balance sheets.
Revenue Recognition and Accounts Receivable
Effective January 1, 2019, and as further described below, the Company accounts for its leases under ASC 842. Pursuant to ASC 842, the Company has made an accounting policy election to not separate the non-lease components from its leases, such as common area maintenance, and has accounted for each of its leases as a single lease component. In addition, the Company has elected to account only for those taxes that it pays on behalf of the tenant as reimbursable costs and will not account for those taxes paid directly by the tenant. Minimum rents from tenants are recognized using the straight-line method over the non-cancelable lease term of the respective leases. Lease termination fees are recognized upon the effective termination of a tenant’s lease when the Company has no further obligations under the lease. As of December 31, 2020 and 2019, unbilled rents receivable relating to the straight-lining of rents of $41.4 million and $48.4 million, respectively, are included in Rents Receivable, net on the accompanying consolidated balance sheets. Certain of these leases also provide for percentage rents based upon the level of sales achieved by the tenant. Percentage rent is recognized in the period when the tenants’ sales breakpoint is met. In addition, leases typically provide for the reimbursement to the Company of real estate taxes, insurance and other property operating expenses. These reimbursements are recognized as revenue in the period the related expenses are incurred.
The Company assesses the collectability of its accounts receivable related to tenant revenues. The Company applies the guidance under ASC 842 in assessing its rents receivable: if collection of rents under specific operating leases is not probable, then the Company recognizes the lesser of that lease’s rental income on a straight-line basis or cash received, plus variable rents as earned. Once this initial assessment is completed, the Company applies a general reserve, as provided under ASC 450-20, if applicable. Rents receivable at December 31, 2020 and 2019 are shown net of an allowance for doubtful accounts of $45.4 million and $11.4 million, respectively. Rental income for the years ended December 31, 2020, 2019 and 2018 are reported net of adjustments of $46.8 million, $4.4 million and $2.5 million respectively, to allowance for doubtful accounts reflecting additional reserves, net of write-offs and recoveries, during 2020 due to the impact of the COVID-19 Pandemic (Note 1).
Stock-Based Compensation
Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments. The Company recognizes these compensation costs for only those shares or units expected to vest on a straight-line or graded-vesting basis, as appropriate, over the requisite service period of the award. The Company includes stock-based compensation within general and administrative expense on the consolidated statements of operations.
Income Taxes
The Company has made an election to be taxed, and believes it qualifies, as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To maintain REIT status for Federal income tax purposes, the Company is generally required to distribute at least 90% of its REIT taxable income to its shareholders as well as comply with certain other income, asset and organizational requirements as defined in the Code. Accordingly, the Company is generally not subject to Federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year.
In connection with the REIT Modernization Act, the Company is permitted to participate in certain activities and still maintain its qualification as a REIT, so long as these activities are conducted in entities that elect to be treated as taxable subsidiaries under the Code. As such, the Company is subject to Federal and state income taxes on the income from these activities.
The Tax Cut and Jobs Act was enacted in December 2017 and is generally effective for tax years beginning in 2018. This new legislation did not have a material adverse effect on the Company’s business and allows non-corporate shareholders to deduct a portion of the Company’s dividends.
Although it may qualify for REIT status for federal income tax purposes, the Company is subject to state or local income or franchise taxes in certain jurisdictions in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the Company’s Taxable REIT Subsidiary (“TRS”) is fully subject to federal, state and local income taxes.
The Company accounts for TRS income taxes under the liability method as required by ASC Topic 740, “Income Taxes.” Under the liability method, deferred income taxes are recognized for the temporary differences between the GAAP basis and tax basis of the TRS income, assets and liabilities.
The recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) temporarily relaxes existing limitations on the use and carryback of net operating losses incurred by our TRSs. Net operating losses generated in taxable years beginning in 2018, 2019 or 2020 can be carried back to the preceding 5 years. In addition, TRSs can fully offset their taxable income for taxable years beginning before 2021 using net operating loss carrybacks and carryforwards and can fully offset their taxable income for taxable years beginning after 2020 using pre-2018 net operating loss carryforwards. Any post-2017 net operating loss carryforwards can be used to offset up to 80% of taxable income after using pre-2018 net operating loss carryforwards. In 2020, the Company carried back $3.1 million of net operating losses, resulting in a refund of $1.0 million.
The Company records net deferred tax assets to the extent it believes it is more likely than not that these assets will be realized. In 2019 and 2020, the Company recorded valuation allowances to reduce deferred tax assets when it determined that an uncertainty existed regarding their realization, which increased the provision for income taxes. In making such determination, the Company considered all available positive and negative evidence, including forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carry-forwards, tax planning strategies and recent results of operations. Several of these considerations require assumptions and significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that the Company is utilizing to manage its business. To the extent facts and circumstances change in the future, further adjustments to the valuation allowances may be required.
Recently Adopted Accounting Pronouncements
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 introduced a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modified the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326) which provided relief to certain entities adopting ASU 2016-13. The amendments accomplish those objectives by providing entities with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, that are within the scope of Subtopic 326-20, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities, therefore, the Company did not elect to apply this option.
ASU 2016-13, and its related ASUs have been adopted by the Company effective January 1, 2020. Retrospective adjustments were applied through a cumulative-effect adjustment to distributions in excess of accumulated earnings in shareholders equity. Upon implementation of ASU 2016-13 and other related guidance, the Company recorded loan loss allowances related to its Structured Financing portfolio (Note 3) of $0.4 million with a cumulative effect adjustment to distributions in excess of accumulated earnings. The Company recorded a credit loss allowance of $0.3 million during year ended December 31, 2020. Effective January 1, 2020, the Company has implemented a new methodology for computing credit losses for its Structured Financing portfolio under ASC 326 (as further described in Note 3), however, the Company has not made any changes to its accounting policies for accounting for credit losses for its receivables arising from operating leases.
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU modifies ASU 2016-13. The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measure at Amortized Cost. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. ASU 2018-19 was adopted by the Company effective January 1, 2020. The Company already accounted for its lease receivables utilizing the guidance of ASC 842 and did not make any adjustments related to the implementation of ASU 2018-19.
Other Accounting Topics
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provides updates and clarifications to three previously-issued ASUs: 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities; 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, described above; and 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which the Company early adopted effective January 1, 2018. The updates related to ASU 2019-04 were adopted by the Company effective January 1, 2020 with no material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance was adopted on January 1, 2020 and did not have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. The amendments in this Update represent changes to clarify or improve the Codification, were adopted effective January 1, 2020 and did not have a material effect on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)-Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Effective in the first quarter of 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation and does not have a material impact on the consolidated financial statements.
On April 8, 2020, the FASB issued a Q&A allowing for reporting entities to make an accounting policy election to account for lease concessions related to the effects of COVID-19 consistent with how those concessions would be accounted for under Topic 842, which is as though the enforceable rights and obligations for those concessions existed regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract. This election is available for concessions that result in the total cash flows required by the modified contract being substantially the same or less than total cash flows required by the original contract. Effective April 1, 2020, the Company has made the accounting policy election noted above. The Company entered into concession agreements both as lessor and lessee during the year ended December 31, 2020 (Note 1). The Company expects that it will grant further concessions during subsequent periods.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in this Update provide guidance for interim period and intra period tax accounting; provide tax accounting guidance for foreign subsidiaries; require that an entity recognize a franchise (or similar) tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; as well as other changes to tax accounting. This ASU is effective for fiscal years beginning after December 15, 2020. As a REIT, the Company usually does not have significant income taxes. Accordingly, the implementation of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01 Investments-Equity securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. The amendments in this Update affect all entities that apply the guidance in Topics 321, 323, and 815 and (i) elect to apply the measurement alternative or (ii) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. This ASU is effective for fiscal years beginning after December 15, 2020. Currently, the Company does not apply the measurement alternative and does not have any such forward contracts or purchase options. As a result, the implementation of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06-Debt with conversion and other options (Subtopic 470-20) and derivatives and hedging-contracts in entity's own equity (Subtopic 815-40)-accounting for convertible instruments and contracts in an entity's own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU simplifies accounting for convertible instruments and simplifies the diluted earnings per share (EPS) calculation in certain areas. This ASU is effective for fiscal years beginning after December 15, 2021. Currently, the Company does not have any such debt instruments and, as a result, the implementation of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
During October 2020, the SEC issued new rules modernizing certain Regulation S-K disclosure requirements. The final rule is intended to improve the readability of disclosures, reduce repetition, and eliminate immaterial information, thereby simplifying compliance for registrants and making disclosures more meaningful for investors. These changes will be effective for all filings on or after November 7, 2020. The Company has made minor disclosure changes to the "Business" and "Risk Factors" sections of this Form 10-K.
In October 2020, the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs. The amendments in this Update clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2020. Early application is not permitted. Currently, the Company does not have any such callable debt securities. As a result, the implementation of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01 Reference Rate Reform (Topic 848) which modifies ASC 848 (ASU 2020-04 discussed above), which was intended to provide relief related to “contracts and transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform.” ASU 2021-01 expands the scope of ASC 848 to include all affected derivatives and give reporting entities the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by the discounting transition. ASU 2021-01 also adds implementation guidance to clarify which optional expedients in ASC 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. Currently, the Company does not have any cleared trades. As a result, the implementation of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
2. Real Estate
The Company’s consolidated real estate is comprised of the following for the periods presented (in thousands):
December 31,
December 31,
Land
$
776,275
$
756,297
Buildings and improvements
2,848,781
2,740,479
Tenant improvements
191,046
173,686
Construction in progress
5,751
13,617
Right-of-use assets - finance leases (Note 11)
25,086
102,055
Total
3,846,939
3,786,134
Less: Accumulated depreciation and amortization
(586,800
)
(490,227
)
Operating real estate, net
3,260,139
3,295,907
Real estate under development
247,349
253,402
Net investments in real estate
$
3,507,488
$
3,549,309
Acquisitions and Conversions
During the years ended December 31, 2020 and 2019, the Company acquired the following consolidated retail properties and other real estate investments (dollars in thousands):
Property and Location
Percent
Acquired
Date of
Acquisition
Purchase
Price
2020 Acquisitions and Conversions
Core
Soho Acquisitions - 37 Greene Street - New York, NY
100%
Jan 9, 2020
$
15,689
917 W. Armitage - Chicago, IL
100%
Feb 13, 2020
3,515
Town Center - Wilmington, DE (Conversion) (Note 4)
100%
Apr 1, 2020
138,939
Subtotal Core
158,143
Fund IV
230-240 W. Broughton Street - Savannah, GA
100%
May 26, 2020
13,219
102 E. Broughton Street - Savannah, GA
100%
May 26, 2020
Subtotal Fund IV
14,009
Total 2020 Acquisitions and Conversions
$
172,152
2019 Acquisitions
Core
Soho Acquisitions - 41, 45, 47, 51 and 53 Greene Street - New York, NY
100%
Mar 15, 2019
Mar 27, 2019
May 29, 2019
Jul 30, 2019
Nov 8, 2019
$
87,006
849, 907 and 912 W. Armitage - Chicago, IL
100%
Sep 11, 2019
Dec 11, 2019
10,738
8436-8452 Melrose Place - Los Angeles, CA
100%
Oct 25, 2019
48,691
Subtotal Core
146,435
Fund V
Palm Coast Landing - Palm Coast, FL
100%
May 6, 2019
36,644
Lincoln Commons - Lincoln, RI
100%
Jun 21, 2019
54,299
Landstown Commons - Virginia Beach, VA
100%
Aug 2, 2019
86,961
Subtotal Fund V
177,904
Total 2019 Acquisitions
$
324,339
For the years ended December 31, 2020 and 2019, the Company capitalized acquisition costs of $1.3 million and $2.6 million, respectively. No debt was assumed in any of the 2020 Acquisitions and Conversions or 2019 Acquisitions. Conversions represent notes receivable that were converted to an interest in the underlying collateral in a non-cash transaction.
Purchase Price Allocations
The purchase prices for the 2020 Acquisitions and Conversions and 2019 Acquisitions were allocated to the acquired assets and assumed liabilities based on their estimated fair values at the dates of acquisition. The following table summarizes the allocation of the purchase price of properties acquired during the years ended December 31, 2020 and 2019 (in thousands):
Year Ended December 31,
Year Ended December 31,
Net Assets Acquired
Land
$
25,440
$
78,263
Buildings and improvements
123,459
221,185
Accounts receivable, prepaids and other assets
5,770
-
Acquisition-related intangible assets (Note 6)
23,061
34,972
Right-of-use asset - Operating lease (Note 11)
-
Acquisition-related intangible liabilities (Note 6)
(4,569
)
(10,081
)
Lease liability - Operating lease (Note 11)
(234
)
-
Accounts payable and other liabilities
(1,009
)
-
Net assets acquired
$
172,152
$
324,339
Consideration
Cash
$
21,208
$
319,673
Conversion of note receivable
38,674
-
Conversion of accrued interest
1,995
-
Liabilities assumed
4,666
Existing interest in previously unconsolidated investment
109,571
-
Acquisition of noncontrolling interests
-
Total consideration
$
172,152
$
324,339
Dispositions
During the years ended December 31, 2020 and 2019, the Company disposed of the following consolidated properties and other real estate investments (in thousands):
Property and Location
Owner
Date Sold
Sale Price
Gain (Loss)
on Sale
2020 Dispositions
163 Highland Ave. (Easement) - Needham, MA
Core
Mar 19, 2020
$
$
Colonie Plaza - Albany, NY
Fund IV
Apr 13, 2020
15,250
Airport Mall (Parcel) - Bangor, ME
Fund IV
Sep 10, 2020
Cortlandt Crossing (Sewer Project and Retention Pond) - Cortlandt, NY
Fund III
Nov 30, 2020
6,325
-
Union Township (Parcel) - New Castle, PA
Core
Dec 11, 2020
Total 2020 Dispositions
$
22,413
$
2019 Dispositions
3104 M Street - Washington, DC (Note 4)
Fund III
Jan 24, 2019
$
10,500
$
2,014
210 Bowery - 3 Residential Condos - New York, NY
Fund IV
May 17, 2019
Sep 23, 2019
Nov 7, 2019
8,826
(242
)
JFK Plaza - Waterville, ME
Fund IV
Jul 24, 2019
7,800
2,075
3780-3858 Nostrand Avenue - New York, NY
Fund III
Aug 22, 2019
27,650
2,562
938 W North Avenue - Chicago, IL
Fund IV
Sep 27, 2019
32,000
7,144
Pacesetter Park - Pomona, NY
Core
Oct 28, 2019
22,550
16,771
Total 2019 Dispositions
$
109,326
$
30,324
The aggregate rental revenue, expenses and pre-tax income reported within continuing operations for the aforementioned consolidated properties that were sold during the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):
Year Ended December 31,
Revenues
$
$
9,786
$
14,010
Expenses
(1,018
)
(8,561
)
(11,946
)
Gain on disposition of properties
30,324
5,140
Net income attributable to noncontrolling interests
(127
)
(10,770
)
(5,131
)
Net income attributable to Acadia
$
$
20,779
$
2,073
Real Estate Under Development and Construction in Progress
Real estate under development represents the Company’s consolidated properties that have not yet been placed into service while undergoing substantial development or construction.
Development activity for the Company’s consolidated properties comprised the following during the periods presented (dollars in thousands):
January 1, 2020
Year Ended December 31, 2020
December 31, 2020
Number of
Properties
Carrying
Value
Transfers In
Capitalized
Costs
Transfers Out
Number of
Properties
Carrying
Value
Core
-
$
60,863
$
-
$
3,012
$
-
-
$
63,875
Fund II (a)
-
10,703
66,812
3,612
6,470
-
74,657
Fund III
36,240
-
13,171
23,139
Fund IV (b)
145,596
-
1,368
61,286
85,678
Total
$
253,402
$
66,812
$
8,062
$
80,927
$
247,349
(a)
Transfers in include $33.8 million of non-cash Fund II additions obtained through the conversion of a note receivable (Note 3).
(b)
Transfers out include impairment charges totaling $16.5 million on two Fund IV development properties (Note 8).
January 1, 2019
Year Ended December 31, 2019
December 31, 2019
Number of
Properties
Carrying
Value
Transfers In
Capitalized
Costs
Transfers Out
Number of
Properties
Carrying
Value
Core
$
7,759
$
57,342
$
5,581
$
9,819
-
$
60,863
Fund II
-
7,462
-
3,241
-
-
10,703
Fund III
21,242
12,313
2,685
-
36,240
Fund IV
83,834
47,689
14,073
-
145,596
Total
$
120,297
$
117,344
$
25,580
$
9,819
$
253,402
The number of properties in the tables above refers to projects comprising the entire property under development; however, certain projects represent a portion of a property. Fund II amounts relate to the City Point Phase III project and a portion of Phase II.
During the year ended December 31, 2020, the Company:
•
placed a portion of one Fund III property, Cortlandt Crossing, into service
•
converted, in a non-cash transaction, a note receivable in exchange for construction improvements in the amount of $33.8 million (Note 3)
•
recognized impairment charges totaling $16.5 million on two Fund IV properties (Note 8) including 717 N. Michigan Avenue and 110 University Place
•
placed a portion of one Fund IV property, 146 Geary Street, into service, which was subsequently impaired (Note 8)
•
placed a portion of Fund II’s City Point Phase II into development
•
suspended certain development projects due to aforementioned disruptions related to the COVID-19 Pandemic. Substantially all remaining development and redevelopment costs are discretionary and dependent upon the resumption of tenant interest.
During the year ended December 31, 2019, the Company placed 1238 Wisconsin, an unconsolidated Core Portfolio property (Note 4) and the following consolidated projects into development:
•
a portion of City Center (Core)
•
a portion of Cortlandt Crossing (Fund III)
•
a portion of 110 University Place (Fund IV, Note 11); and
•
its 146 Geary Street property (Fund IV)
During the year ended December 31, 2019, the Company placed one Core Portfolio development project, 56 E. Walton, into service.
Construction in progress pertains to construction activity at the Company’s operating properties that are in service and continue to operate during the construction period.
3. Notes Receivable, Net
The Company’s notes receivable, net are generally collateralized either by the underlying properties or the borrowers’ ownership interests in the entities that own the properties, and were as follows (dollars in thousands):
December 31,
December 31,
December 31, 2020
Description
Number
Maturity Date
Interest Rate
Core Portfolio (a)
$
96,794
$
76,467
Apr 2020 - Dec 2027
2.81% - 9.00%
Fund II
-
33,170
-
Dec 2020
1.75%
Fund III
5,306
5,306
Jul 2020
18.00%
Total notes receivable
102,100
114,943
Allowance for credit loss
(650
)
-
Notes receivable, net
$
101,450
$
114,943
(a)
Includes two notes receivable from OP Unit holders, with balances totaling $6.5 million at December 31, 2020 and 2019.
During the year ended December 31, 2020, the Company:
•
exchanged its Brandywine Note Receivable of $38.7 million plus accrued interest of $2.0 million for the remaining 24.78% undivided interest in Town Center on April 1, 2020 (Note 4);
•
recorded credit loss reserves of $0.4 million upon the adoption of ASC 326 (Note 1);
•
converted $33.8 million balance of a Fund II note receivable for interest in real estate on November 2, 2020 (Note 2). Prior to the exchange, the note had been increased by the interest accrued during 2020 of $0.6 million;
•
made a Core loan for $54.0 million with an interest rate of 9% structured as a redeemable preferred equity investment in a property at 850 Third Avenue in Brooklyn, New York on January 14, 2020;
•
issued a new Core Portfolio note for $5.0 million with an interest rate of 8% collateralized by our partner’s 50% share of the LUF Portfolio (Note 4) in Washington, D.C. effective February 1, 2020; and
•
recorded additional credit loss reserves of $0.3 million related to new transactions and recent market volatility.
One Core Portfolio note aggregating $21.6 million including accrued interest (exclusive of default interest and other amounts due on the loan that have not been recognized) was in default at December 31, 2020 and December 31, 2019. On April 1, 2020, the loan matured and was not repaid. The Company expects to take appropriate actions to recover the amounts due under the loan, and has issued a reservation of rights letter to the borrowers and guarantor, reserving all of its rights and remedies under the applicable loan documents and otherwise. In addition, one Fund III note receivable aggregating $10.0 million, including accrued interest (exclusive of default interest and other amounts due on the loan that have not been recognized) matured on July 1, 2020 and was not repaid. The Company has issued the borrower a notice of maturity default. The Company has determined for each loan that the collateral is sufficient to cover the loan’s carrying value at December 31, 2020. In addition, there are certain personal guarantees associated with these notes receivable.
During the year ended December 31, 2019, the Company:
•
redeemed its $15.3 million Fund IV investment plus accrued interest of $10.0 million;
•
provided seller financing to the buyer in the amount of $13.5 million with an effective interest rate of 5.1%, collateralized by Pacesetter Park, in connection with the sale of the property (Note 2);
•
funded an additional $4.3 million on a Core Portfolio note receivable from an OP Unit holder;
•
increased the balance of a Fund II note receivable by the interest accrued of $0.4 million;
•
stopped accruing interest on one Fund III loan, due to the estimated market value of the collateral. The note had $4.7 million of accrued interest at each of December 31, 2018 and December 31, 2019 and was guaranteed by a third party; and
•
modified one Core loan to defer $0.4 million of interest until maturity. Subsequent to modification, the first mortgage, which aggregated $20.8 million including accrued interest, was in default as of December 31, 2019.
The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company’s loan in relation to other debt secured by the collateral and the prospects of the borrower.
Earnings from these notes and mortgages receivable are reported within the Company’s Structured Financing segment (Note 12). See Note 16 for information about investments subsequent to December 31, 2020.
The Company’s estimated reserve for credit losses related to its Structured Financing segment has been computed for its amortized cost basis in the portfolio, including accrued interest (Note 5), factoring historical loss experience in the United Sates for similar loans, as adjusted for current conditions, as well as the Company’s expectations related to future economic conditions. Due to the lack of comparability across the Structured Financing portfolio, each loan was evaluated separately. As a result, for non-collateral dependent loans with a total amortized cost of $77.7 million, inclusive of accrued interest of $5.2 million, credit loss reserves have been recorded aggregating $0.7 million at December 31, 2020. For certain loans in this portfolio, aggregating $38.3 million, inclusive of accrued interest of $8.7 million, at December 31, 2020, the Company has elected to apply a practical expedient in accordance with ASC 326 and did not establish a credit loss reserve because (i) these loans are collateral-dependent loans, which due to their settlement terms are not expected to be settled in cash but rather by the Company’s possession of the real estate collateral; and (ii) at December 31, 2020, the Company determined that the estimated fair value of the collateral at the expected realization date for these three loans was sufficient to cover the carrying value of its investments in these notes receivable. Impairment charges may be required if and when such amounts are estimated to be nonrecoverable upon a realization event, which is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold; however, non-recoverability may also be concluded if it is reasonably certain that all amounts due will not be collected.
4. Investments in and Advances to Unconsolidated Affiliates
The Company accounts for its investments in and advances to unconsolidated affiliates primarily under the equity method of accounting as it has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by each of the unaffiliated partners who co-invest with the Company. The Company’s investments in and advances to unconsolidated affiliates consist of the following (dollars in thousands):
Ownership Interest
December 31,
December 31,
Portfolio
Property
December 31, 2020
Core:
840 N. Michigan (a)
88.43%
$
55,863
$
61,260
Renaissance Portfolio
20%
29,270
31,815
Gotham Plaza
49%
28,683
29,466
Town Center (a, b)
100%
-
97,674
Georgetown Portfolio
50%
4,624
4,498
1238 Wisconsin Avenue
80%
2,571
1,194
121,011
225,907
Mervyns I & II:
KLA/ABS (c)
36.7%
72,391
Fund III:
Fund III Other Portfolio
94.23%
-
Self Storage Management (d)
95%
Fund IV:
Broughton Street Portfolio (e)
100%
-
12,702
Fund IV Other Portfolio
98.57%
11,719
14,733
650 Bald Hill Road
90%
12,550
12,450
24,269
39,885
Fund V:
Family Center at Riverdale (a)
89.42%
11,824
13,329
Tri-City Plaza (h)
90%
7,024
10,250
Frederick County Acquisitions
90%
10,837
15,070
29,685
38,649
Various:
Due from (to) Related Parties
(1,902
)
Other (f)
1,881
1,932
Investments in and advances to
unconsolidated affiliates
$
249,807
$
305,097
Core:
Crossroads (g)
49%
$
15,616
$
15,362
Distributions in excess of income from,
and investments in, unconsolidated affiliates
$
15,616
$
15,362
(a)
Represents a tenancy-in-common interest.
(b)
During November 2017, March 2018 and April 2020, as discussed below, the Company gradually increased its ownership to 100% and consolidated Town Center.
(c)
Includes an interest in Albertsons (at fair value at December 31, 2020 and at cost at December 31, 2019, as described below (Note 8).
(d)
Represents a variable interest entity for which the Company was determined not to be the primary beneficiary.
(e)
During May 2020, as discussed below, the Company increased its ownership in Broughton Street Portfolio to 100% and consolidated the underlying properties.
(f)
Includes cost-method investments in, Storage Post, Fifth Wall and other investments.
(g)
Distributions have exceeded the Company’s investment; however, the Company recognizes a liability balance as it may be required to return distributions to fund future obligations of the entity.
Core Portfolio
Acquisition of Unconsolidated Investments
On January 24, 2019, the Renaissance Portfolio, in which the Company owns a 20% noncontrolling interest, acquired a 7,300 square foot property in Fund III’s 3104 M Street property located in Washington, D.C. for $10.7 million (Note 2) less the assumption of the outstanding mortgage of $4.7 million.
On August 8, 2019, the Company invested $1.8 million in Fifth Wall Ventures Retail Fund, L.P. (“Fifth Wall”). During the fourth quarter 2019, the Company invested another $0.2 million. The Company’s total commitment is $5.0 million. The Company accounts for its interest at cost less impairment given its ownership is less than five percent, and the Company has virtually no influence over the partnership’s operating and financial policies. During the fourth quarter of 2020, the Company impaired $0.4 million for this investment (Note 8) reflecting management’s estimate of fair value at that date. At December 31, 2020, the Company’s investment was $1.7 million.
On May 2, 2019, the Company acquired a ground lease interest at 1238 Wisconsin Avenue in Washington, D.C. (“1238 Wisconsin”). Prior to the fourth quarter of 2019, the Company had a controlling interest, and therefore consolidated the property within the Company’s financial statements. During December 2019, the Company entered into an operating agreement in order to admit a co-investor and property manager, who was also appointed the development manager under a separate agreement. As a result of these transactions and the significant participation rights of the co-investor, the Company de-consolidated 1238 Wisconsin and accounted for its interest under the equity method of accounting effective October 1, 2019 as it does not control but exercises significant influence over the investment. No gain or loss was recognized as the Company’s investment approximated fair value at the time of de-consolidation.
Brandywine Portfolio, Market Square and Town Center
The Company owns an interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio” joint venture) located in Wilmington, Delaware, which includes two properties referred to as “Market Square” and “Town Center.” Prior to the second quarter of 2016, the Company had a controlling interest in the Brandywine Portfolio, and it was therefore consolidated within the Company’s financial statements. During April 2016, the arrangement with the partners of the Brandywine Portfolio was modified to change the legal ownership from a partnership to a tenancy-in-common interest, as well as to provide certain participating rights to the outside partners. As a result of these modifications, the Company de-consolidated the Brandywine Portfolio and accounted for its interest under the equity method of accounting effective May 1, 2016. Furthermore, as the owners of the Brandywine Portfolio had consistent ownership interests before and after the modification and the underlying net assets were unchanged, the Company reflected the change from consolidation to equity method based upon its historical cost. The Brandywine Portfolio and Market Square ventures do not include the property held by Acadia Brandywine Holdings, LLC (“Brandywine Holdings”), an entity in which the Company had a 22.22% controlling interest (until it acquired the noncontrolling interest during 2020 as discussed in Note 7) and which is consolidated by the Company.
Additionally, in April 2016, the Company repaid the outstanding balance of $140.0 million of non-recourse debt collateralized by the Brandywine Portfolio and provided a note receivable collateralized by the partners’ tenancy-in-common interest in the Brandywine Portfolio for their proportionate share of the repayment. On May 1, 2017, the Company exchanged $16.0 million of the $153.4 million notes receivable (the “Brandywine Notes Receivable”) (Note 3) plus accrued interest of $0.3 million for one of the partner’s 38.89% tenancy-in-common interests in Market Square. The Company already had a 22.22% interest in Market Square and continued to apply the equity method of accounting for its aggregate 61.11% noncontrolling interest in Market Square and its 22.22% interest in Town Center through November 16, 2017. The incremental investment in Market Square was recorded at $16.3 million and the excess of this amount over the venture’s book value associated with this interest, or $9.8 million, was being amortized over the remaining depreciable lives of the venture’s assets through November 16, 2017. On November 16, 2017, the Company exchanged an additional $16.0 million of Brandywine Notes Receivable plus accrued interest of $0.6 million for the remaining 38.89% interest in Market Square, thereby obtaining a 100% controlling interest in the property.
On November 16, 2017, the Company exchanged $60.7 million of the Brandywine Notes Receivable plus accrued interest of $0.9 million for one of the partner’s 38.89% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $61.6 million and the excess of this amount over the venture’s book value associated with this interest, or $34.5 million, is being amortized over the remaining depreciable lives of the venture’s assets. The Company previously had a 22.22% interest in Town Center which then became 61.11% following the November 2017 transaction.
On March 28, 2018, the Company exchanged $22.0 million of its Brandywine Notes Receivable plus accrued interest of $0.3 million for one of the partner’s 14.11% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $ 22.3 million and the excess of this amount over the venture’s book value associated with this interest, or $12.7 million, is being amortized over the remaining depreciable lives of the venture’s assets. The Company continued to apply the equity method of accounting for its aggregate 75.22% noncontrolling interest in Town Center after the March 2018 transaction.
On April 1, 2020, the Company exchanged the remaining $38.7 million of Brandywine Notes Receivable (Note 3), plus accrued interest of $2.0 million for the remaining 24.78% interest in Town Center, thereby obtaining a 100% controlling interest in the property. The property was then consolidated (Note 2) and the Company recorded the remaining interest in the property investment at the carrying value of the notes.
Fund Investments
Acquisitions of Unconsolidated Investments
On March 19, 2019, Fund V obtained an 99.35% interest in a joint venture which in turn obtained a 90% undivided interest in a 428,000 square-foot property located in Riverdale, Utah referred to as “Family Center at Riverdale” for $48.5 million. The property is held by the venture as a tenancy in common. The Company accounts for its interest in the Family Center at Riverdale under the equity method of accounting as it does not control but exercises significant influence over the investment.
On April 30, 2019, Fund V acquired a 90% interest in a venture which invested in a 300,000 square-foot property located in Vernon, Connecticut referred to as “Tri-City Plaza” for $36.7 million. The Company accounts for its interest in Tri-City Plaza under the equity method of accounting as it does not control but exercises significant influence over the investment.
On August 21, 2019, Fund V acquired a 90% interest in a venture which invested in a 225,000 square foot property and a 300,000 square foot property, both located in Frederick County, Maryland collectively referred to as the “Frederick County Acquisitions” for $21.8 million and $33.1 million, respectively. The Company accounts for its interest in the Frederick County Acquisitions under the equity method of accounting as it does not control but exercises significant influence over the investment.
Broughton Street Portfolio
During 2014, Fund IV acquired 50% interests in two joint ventures referred to as “BSP I” and “BSP II” with the same venture partner to acquire and operate a total of 23 properties in Savannah, Georgia referred to as the “Broughton Street Portfolio.” Since that time, as described below, the ventures have sold eight of the properties and terminated the master leases on two of the properties. In October 2018, the venture partner relinquished its interest in BSP I, resulting in Fund IV becoming the 100% owner of the BSP I venture, which holds 11 consolidated properties (Note 2).
On May 26, 2020, pursuant to the buy-sell provisions of the operating agreement of the Broughton Street Portfolio, Fund IV acquired all of the third-party equity of BSP II, which underlies two properties within Broughton Street Portfolio, for $1.3 million in a non-monetary exchange. These two BSP II properties were consolidated during the second quarter of 2020.
Storage Post
On June 29, 2019, Fund III’s Storage Post venture, which is a cost method investment with no carrying value distributed $1.6 million, of which the Operating Partnership’s share was $0.4 million.
Albertsons
During 2006, as part of a series of investments with a consortium of other investors known as the “RCP Venture”, Mervyns II acquired an indirect interest in Albertsons Companies, Inc., a private chain of grocery stores (“Albertsons”) through two 36.67% owned entities (KLA A Investments, LLC and ABS Opportunities, LLC, “KLA/ABS”). Its investment (the “Investment in Albertsons”) has been accounted for under the cost method as Mervyns II has no influence over operating and financial policies of KLA/ABS. Subsequent to the initial investment in 2006, Mervyns II received distributions from its Investment in Albertsons in excess of its initial contribution, which has been recognized in earnings. During the second and fourth quarters of 2020, Mervyns II realized gains of approximately $22.8 million and $0.4 million, respectively, from its Investment in Albertsons. The realized gains during the second quarter of 2020 resulted from the issuance and distribution of proceeds from a preferred equity investment and a sale of a portion of its investment in an initial public offering of Albertsons, both of which occurred in June 2020. Following these transactions, Mervyns II has retained an effective indirect ownership of approximately 4.1 million shares (approximately 1% interest) through its Investment in Albertsons, which it has accounted for at fair value following the initial public offering given the readily determinable fair value, resulting in an unrealized gain of approximately $64.9 million. During the year ended December 31, 2020, the Company recorded an additional net unrealized holding gain of $7.5 million reflecting the change in fair value of its Investment in Albertsons. The Company has reflected both the realized and net unrealized gain or loss as Realized and unrealized holding gains on investments and other within its consolidated statements of operations for the year ended December 31, 2020. The Company has an effective ownership interest of 28.33% in Mervyns II.
Fees from Unconsolidated Affiliates
The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.4 million, $0.3 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively, which is included in other revenues in the consolidated statements of operations.
In addition, the Company paid to certain unaffiliated partners of its joint ventures, $2.1 million and $1.3 million and $1.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, for leasing commissions, development, management, construction and overhead fees.
Summarized Financial Information of Unconsolidated Affiliates
The following combined and condensed Balance Sheets and Statements of Operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates (in thousands):
December 31,
December 31,
Combined and Condensed Balance Sheets
Assets:
Rental property, net
$
563,997
$
656,265
Real estate under development
14,517
1,341
Other assets
61,969
85,540
Total assets
$
640,483
$
743,146
Liabilities and partners’ equity:
Mortgage notes payable
$
512,490
$
502,036
Other liabilities
74,872
77,785
Partners’ equity
53,121
163,325
Total liabilities and partners’ equity
$
640,483
$
743,146
Company's share of accumulated equity
$
100,767
$
186,864
Basis differential
55,017
100,962
Deferred fees, net of portion related to the Company's interest
3,565
1,270
Amounts receivable/payable by the Company
(1,902
)
Investments in and advances to unconsolidated affiliates, net of Company's
share of distributions in excess of income from and investments in
unconsolidated affiliates
159,712
287,194
Cost method investments
74,479
2,541
Company's share of distributions in excess of income from and
investments in unconsolidated affiliates
15,616
15,362
Investments in and advances to unconsolidated affiliates
$
249,807
$
305,097
Year Ended December 31,
Combined and Condensed Statements of Operations
Total revenues
$
73,478
$
88,893
$
79,555
Operating and other expenses
(26,389
)
(24,932
)
(22,957
)
Interest expense
(20,172
)
(21,874
)
(19,954
)
Depreciation and amortization
(28,102
)
(25,358
)
(22,228
)
Loss on disposition of properties
-
-
(1,673
)
Net (loss) income attributable to unconsolidated affiliates
$
(1,185
)
$
16,729
$
12,743
Company’s share of equity in net (loss) income of unconsolidated affiliates
$
$
11,772
$
12,345
Basis differential amortization
(2,202
)
(2,850
)
(3,043
)
Company’s equity in (losses) earnings of unconsolidated affiliates
$
(1,237
)
$
8,922
$
9,302
5. Other Assets, Net and Accounts Payable and Other Liabilities
Other assets, net and accounts payable and other liabilities are comprised of the following for the periods presented:
(in thousands)
December 31,
December 31,
Other Assets, Net:
Lease intangibles, net (Note 6)
$
100,732
$
116,820
Deferred charges, net (a)
30,488
28,746
Prepaid expenses
17,468
18,873
Accrued interest receivable
13,917
9,872
Due from seller
3,682
3,682
Income taxes receivable
2,433
1,755
Other receivables
2,058
3,996
Deposits
1,728
1,853
Corporate assets, net
1,302
1,565
Derivative financial instruments (Note 8)
2,583
Deferred tax assets
-
$
173,809
$
190,658
(a) Deferred Charges, Net:
Deferred leasing and other costs
$
57,533
$
49,081
Deferred financing costs related to line of credit
11,341
10,051
68,874
59,132
Accumulated amortization
(38,386
)
(30,386
)
Deferred charges, net
$
30,488
$
28,746
Accounts Payable and Other Liabilities:
Derivative financial instruments (Note 8)
$
90,139
$
39,061
Lease intangibles, net (Note 6)
76,434
82,926
Accounts payable and accrued expenses
53,031
68,838
Deferred income
31,842
33,682
Tenant security deposits, escrow and other
12,178
12,590
Lease liability - finance leases, net (Note 11)
6,287
77,657
$
269,911
$
314,754
6. Lease Intangibles
Upon acquisitions of real estate, the Company assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above- and below-market leases, including below-market options and acquired in-place leases) and assumed liabilities. The lease intangibles are amortized over the remaining terms of the respective leases, including option periods where applicable.
Intangible assets and liabilities are included in Other assets and Accounts payable and other liabilities (Note 5) on the consolidated balance sheet and summarized as follows (in thousands):
December 31, 2020
December 31, 2019
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Amortizable Intangible Assets
In-place lease intangible assets
$
268,335
$
(171,856
)
$
96,479
$
249,961
$
(137,108
)
$
112,853
Above-market rent
19,188
(14,935
)
4,253
17,227
(13,260
)
3,967
$
287,523
$
(186,791
)
$
100,732
$
267,188
$
(150,368
)
$
116,820
Amortizable Intangible Liabilities
Below-market rent
$
(164,923
)
$
88,951
$
(75,972
)
$
(160,721
)
$
78,315
$
(82,406
)
Above-market ground lease
(671
)
(462
)
(671
)
(520
)
$
(165,594
)
$
89,160
$
(76,434
)
$
(161,392
)
$
78,466
$
(82,926
)
During the year ended December 31, 2020, the Company acquired in-place lease intangible assets of $21.0 million, above-market rents of $2.0 million, and below-market rents of $4.6 million with weighted-average useful lives of 4.9, 5.8, and 20.2 years, respectively. During the year ended December 31, 2019, the Company acquired in-place lease intangible assets of $36.1 million, above-market rents of $0.6 million, and below-market rents of $10.4 million with weighted-average useful lives of 7.9, 6.7, and 21.7 years, respectively.
Amortization of in-place lease intangible assets is recorded in depreciation and amortization expense and amortization of above-market rent and below-market rent is recorded as a reduction to and increase to rental income, respectively, in the consolidated statements of operations. Amortization of above-market ground leases are recorded as a reduction to rent expense in the consolidated statements of operations.
The scheduled amortization of acquired lease intangible assets and assumed liabilities as of December 31, 2020 is as follows (in thousands):
Years Ending December 31,
Net Increase in
Lease Revenues
Increase to
Amortization
Reduction of
Rent Expense
Net (Expense) Income
$
6,920
$
(24,599
)
$
$
(17,621
)
6,251
(18,089
)
(11,780
)
5,784
(13,428
)
(7,586
)
5,433
(9,486
)
(3,995
)
4,767
(8,376
)
(3,551
)
Thereafter
42,564
(22,501
)
20,235
Total
$
71,719
$
(96,479
)
$
$
(24,298
)
7. Debt
A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):
Interest Rate at
Carrying Value at
December 31,
December 31,
Maturity Date at
December 31,
December 31,
December 31, 2020
Mortgages Payable
Core Fixed Rate
3.88%-5.89%
3.88%-6.00%
Feb 2024 - Apr 2035
$
147,810
$
176,176
Core Variable Rate - Swapped (a)
3.41%-4.54%
3.41%-4.54%
Jan 2023 - Nov 2028
80,500
81,559
Total Core Mortgages Payable
228,310
257,735
Fund II Fixed Rate
-
4.75%
-
200,000
Fund II Variable Rate
LIBOR+3.00% - PRIME+2.00%
LIBOR+3.00%
Mar 2022 - May 2022
228,282
24,225
Fund II Variable Rate - Swapped (a)
2.88%
2.88%
Nov 2021
18,803
19,073
Total Fund II Mortgages Payable
247,085
243,298
Fund III Variable Rate
LIBOR+2.75%-LIBOR+3.10%
LIBOR+2.75%-LIBOR+3.10%
Jun 2021 - Jul 2022
71,918
74,554
Fund IV Fixed Rate
3.40%-4.50%
3.40%-4.50%
Oct 2025 - Jun 2026
6,726
8,189
Fund IV Variable Rate
LIBOR+1.60%-LIBOR+3.40%
LIBOR+1.60%-LIBOR+3.40%
Feb 2021 - Oct 2025
175,009
157,015
Fund IV Variable Rate - Swapped (a)
3.48%-4.61%
3.48%-4.61%
Apr 2022 - Dec 2022
66,590
102,699
Total Fund IV Mortgages Payable
248,325
267,903
Fund V Variable Rate
LIBOR+1.50%-LIBOR+2.20%
LIBOR+1.50%-LIBOR+2.20%
Feb 2021 - Dec 2024
1,354
1,387
Fund V Variable Rate - Swapped (a)
2.95%-4.78%
2.95%-4.78%
Feb 2021 - Dec 2024
334,323
334,626
Total Fund V Mortgage Payable
335,677
336,013
Net unamortized debt issuance costs
(6,507
)
(10,078
)
Unamortized premium
Total Mortgages Payable
$
1,125,356
$
1,170,076
Unsecured Notes Payable
Core Variable Rate Unsecured Term Loans
LIBOR+2.55%
-
Jun 2021
$
30,000
$
-
Core Variable Rate Unsecured
Term Loans - Swapped (a)
2.49%-5.02%
2.49%-5.02%
Mar 2023
350,000
350,000
Total Core Unsecured Notes
Payable
380,000
350,000
Fund II Unsecured Notes Payable
LIBOR+1.65%
LIBOR+1.65%
Sep 2021
40,000
40,000
Fund IV Term Loan/Subscription Facility
LIBOR+1.90%-LIBOR+2.00%
LIBOR+1.65%-LIBOR+2.00%
Jun 2021 - Dec 2021
80,089
87,625
Fund V Subscription Facility
LIBOR+1.60%
-
May 2021
-
Net unamortized debt issuance costs
(256
)
(305
)
Total Unsecured Notes Payable
$
500,083
$
477,320
Unsecured Line of Credit
Core Unsecured Line of Credit -Swapped (a)
2.49%-5.02%
2.49%-5.02%
Mar 2022
$
138,400
$
60,800
Total Debt - Fixed Rate (b, c )
$
1,143,152
$
1,403,324
Total Debt - Variable Rate (d)
626,902
314,604
Total Debt
1,770,054
1,717,928
Net unamortized debt issuance costs
(6,763
)
(10,383
)
Unamortized premium
Total Indebtedness
$
1,763,839
$
1,708,196
(a)
At December 31, 2020, the stated rates ranged from LIBOR + 1.50% to LIBOR +1.90% for Core variable-rate debt; LIBOR + 1.39% for Fund II variable-rate debt; LIBOR + 2.75% to LIBOR + 3.10% for Fund III variable-rate debt; LIBOR + 1.75% to LIBOR +2.25% for Fund IV variable-rate debt; LIBOR + 1.50% to LIBOR + 2.20% for Fund V variable-rate debt; LIBOR + 1.25% for Core variable-rate unsecured term loans; and LIBOR + 1.35% for Core variable-rate unsecured lines of credit.
(b)
Includes $988.6 million and $948.8 million, respectively, of variable-rate debt that has been fixed with interest rate swap agreements as of the periods presented.
(c)
Fixed-rate debt at December 31, 2020 and 2019 includes $3.2 million and $70.2 million, respectively of Core swaps that may be used to hedge debt instruments of the Funds.
(d)
Includes $139.2 million and $143.3 million, respectively, of variable-rate debt that is subject to interest cap agreements.
Credit Facility
On February 20, 2018, the Company entered into a $500.0 million senior unsecured credit facility (the “Credit Facility”), comprised of a $150.0 million senior unsecured revolving credit facility (the “Revolver”) which bears interest at LIBOR + 1.40% and a $350.0 million senior unsecured term loan (the “Term Loan”) which bears interest at LIBOR + 1.30%.
On October 8, 2019, the Company modified the Credit Facility, which provided for a $100.0 million increase in the Revolver. This amendment resulted in borrowing capacity of up to $600.0 million in principal amount, which includes a $250.0 million revolving credit facility maturing on March 31, 2022, subject to an extension option, and a $350.0 million Term Loan expiring on March 31, 2023. In addition, the amendment provides for revisions to the accordion feature, which allows for one or more increases in the revolving credit facility or term loan facility, for a maximum aggregate principal amount not to exceed $750.0 million. On December 17, 2020, the Company modified certain of its financial covenants on its Credit Facility, along with its $30.0 million Core Term Loan, which had no impact on its borrowing capacity.
Mortgages Payable
During the year ended December 31, 2020, the Company:
•
extended the maturity date of a $200.0 million Fund II loan from May 2020 to May 2022. In addition, the Company extended seven Fund mortgages, two of which were extended for one year during the first quarter with aggregate outstanding balances of $46.0 million at December 31, 2020, two of which was extended for one year during the second quarter with an aggregate outstanding balance of $51.3 million at December 31, 2020, one of which were extended for one year during the third quarter with aggregate outstanding balances of $40.0 million at December 31, 2020, and two of which were extended for a minimum of one year during the fourth quarter with aggregate outstanding balances of $88.0 million at December 31, 2020;
•
modified the terms of one Fund IV $23.8 million mortgage, which had $18.9 million outstanding, in June 2020 to adjust the allowable timing of draws. At closing, an additional $1.0 million was drawn and in July 2020 an additional $0.9 million was drawn. The Company also modified one Fund III and two Fund IV loans aggregating $103.4 million requiring the repayment of $11.5 million;
•
entered into two swap agreements in February 2020 each with notional values of $50.0 million, which are not effective until April 2022 and April 2023. In July 2020, two previously-executed forward swap agreements took effect with current notional values as of December 31, 2020 of $30.4 million each (Note 8);
•
repaid one Core mortgage of $26.3 million in connection with the litigation settlement discussed below and one Fund IV mortgage of $11.6 million in connection with the sale of Colonie Plaza in April 2020 (Note 2); and
•
made scheduled principal payments of $6.1 million.
During the year ended December 31, 2019, the Company:
•
obtained one new Fund II construction loan, three new Fund IV mortgages and five new Fund V mortgages totaling $258.9 million with a weighted-average interest rate of LIBOR + 1.70% collateralized by nine properties and maturing in 2022 through 2024;
•
refinanced three mortgages with existing balances totaling $69.0 million at a weighted-average rate of LIBOR + 2.08% and maturities ranging from May 2019 to January 2021 with new mortgages totaling $71.8 million with a weighted-average rate of LIBOR + 1.86% and maturities ranging from April 2022 through December 2024;
•
transferred a Fund III mortgage with a balance of $4.7 million and an interest rate of Prime + 0.5% which was assumed by the purchasing venture in a property sale (Note 2). The Company repaid one Fund III loan in the amount of $9.8 million and two Fund IV loans in the aggregate amount of $18.4 million in connection with the sale of the properties. The Company also repaid a Fund IV loan in full, which had a balance of $38.2 million and an interest rate of LIBOR + 2.35%. The Company also made scheduled principal payments of $5.9 million;
•
modified three loans with prior borrowing capacity totaling $135.9 million at a weighted-average rate of LIBOR + 3.65% and maturities ranging from November 2019 through January 2020 by obtaining new commitments totaling $125.3 million with a weighted-average rate of LIBOR + 2.96% and maturities ranging from December 2020 through May 2021; and
•
entered into interest rate swap contracts to effectively fix the variable portion of the interest rates of all nine new obligations and two of the refinanced obligations with a notional value of $283.6 million at a weighted-average interest rate of 1.78%.
At December 31, 2020 a Fund mortgage and a Fund IV term loan aggregating $115.2 million, or $27.1 million at the Company’s share, had not met their liquidity requirements. In addition, at that same date, three Fund mortgages aggregating $124.1 million, or $25.6 million at the Company’s share, had not met their debt yield and/or debt service coverage ratio requirements. Some of these lenders may require cash sweeps of property rents until these conditions are remedied.
At December 31, 2020 and 2019, the Company’s mortgages were collateralized by 42 and 44 properties, respectively, and the related tenant leases. Certain loans are cross-collateralized and contain cross-default provisions. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and leverage ratios. The Company is not in default on any of its loan agreements, except as noted below. A portion of the Company’s variable-rate mortgage debt has been effectively fixed through certain cash flow hedge transactions (Note 8).
The mortgage loan collateralized by the property held by Brandywine Holdings in the Core Portfolio, was in default and subject to litigation at December 31, 2019. The loan was originated in June 2006 and had an original principal amount of $26.3 million and a scheduled maturity of July 1, 2016. By maturity, the loan was in default. The loan bore interest at a stated rate of approximately 6.00% and was subject to additional default interest of 5.00%. In April 2017, the successor to the original lender, Wilmington - 5190 Brandywine Parkway, LLC (the “Successor Lender”), initiated lawsuits against Brandywine Holdings in Delaware Superior Court and Delaware Court of Chancery for, among other things, judgment on the note (the “Note Complaint”) and foreclosure on the property. In a contemporaneously filed action in Delaware Superior Court (the “Guaranty Complaint”), the Successor Lender also initiated a lawsuit against the Operating Partnership as guarantor of certain guaranteed obligations of Brandywine Holdings set forth in a non-recourse carve-out guaranty executed by the Operating Partnership. The Guaranty Complaint alleged that the Operating Partnership was liable for the original principal, accrued interest, default interest, late charges as well as fees, costs and protective advances, under the Brandywine Loan, which the Successor Lender alleged totaled approximately $33.0 million as of November 9, 2017 (exclusive of accruing interest, default interest, late charges, and fees and costs). In August 2019, the Delaware Superior Court heard arguments on the parties’ cross-motions for summary judgment regarding both the Guaranty Complaint and the Note Complaint. On February 7, 2020, the Delaware Superior Court granted in part the Successor Lender’s motion, and denied Brandywine Holdings’ and the Operating Partnership’s cross-motion, for summary judgment, finding that each of Brandywine Holdings and the Operating Partnership had recourse liability under the Brandywine Loan and requesting the parties to contact the Court regarding a hearing of any additional outstanding issues. On June 24, 2020, the Successor Lender filed a motion to (i) amend the Note Complaint and Guaranty Complaint in order to increase the alleged balance under the Brandywine Loan to $46.8 million as of March 31, 2020, plus default interest of $0.3 million and additional attorneys’ fees of $0.2 million from April 1, 2020 to April 23, 2020, minus suspense funds of $1.5 million, and (ii) for entry of judgment in the foregoing amounts. Brandywine Holdings and the Operating Partnership opposed the motion. By Final Order and Judgment, entered July 27, 2020, the Delaware Superior Court denied the Successor Lender’s motion, and entered judgment against Brandywine Holdings and the Operating Partnership, jointly and severally, in the amount of $33.2 million, plus accruing interest and default interest in the total amount of $8,017 per diem from and after November 10, 2017 through the date of entry of judgment, less $1.3 million in “suspense funds” (consisting of unapplied property collections minus unapplied fees (including attorneys’ fees), costs, and protective advances made on Successor Lender’s behalf), together with post judgment interest, accruing after the entry of judgment, at the contract rate of interest agreed to by the parties. In connection with the Final Order and Judgment, during the three months ended June 30, 2020, the Company recorded an additional $6.8 million related primarily to legal and other costs of which the Company’s proportionate share was $1.5 million. Brandywine Holdings and the Operating Partnership filed a notice of appeal of the ruling by the Delaware Superior Court and the lender filed a notice of cross-appeal. On October 2, 2020, on request of all parties to the litigation, the appeal and cross-appeal were stayed by the Supreme Court of Delaware for a period of 90 days so that the parties could pursue settlement of the litigation. On October 30, 2020, the Company settled the litigation for approximately $30.0 million resulting in a gain on debt extinguishment of $18.3 million reflected in Realized and unrealized holding gains on investments and other in the consolidated statement of operations, of which the Company’s proportionate share was $4.1 million. Upon settlement of this litigation, the Company obtained its partner’s 78.22% noncontrolling interest for nominal consideration, resulting in a negative adjustment of $15.9 million to equity (Note 10).
During the third quarter of 2019, the Company recognized income of $5.0 million related to Fund II’s New Market Tax Credit transaction (“NMTC”) involving its City Point project. NMTCs were created to encourage economic development in low income communities and provided for a 39% tax credit on certain qualifying invested equity/loans. In 2012, the NMTCs were transferred to a group of investors (“Investors”) in exchange for $5.2 million. The NMTCs were subject to recapture under various circumstances, including redemption of the loan/investment prior to a requisite seven-year hold period, and recognition of income was deferred. Upon the expiration of the seven-year period and there being no further obligations, the Company recognized income of $5.0 million, of which the Company’s proportionate share was $1.4 million, which is included in Realized and unrealized holding gains on investments and other in the consolidated statements of operations.
Unsecured Notes Payable
Unsecured notes payable for which total availability was $128.7 million and $152.5 million at December 31, 2020 and 2019, respectively, are comprised of the following:
•
The outstanding balance of the Core term loan was $350.0 million at each of December 31, 2020 and 2019. The Company previously entered into swap agreements fixing the rates of the remaining Core term loan balance.
•
On July 1, 2020, the Company obtained an additional $30.0 million Core term loan, with an accordion option to increase up to $90.0 million. This term loan matures on June 30, 2021 and bears interest at LIBOR plus 2.55% with a LIBOR floor of 0.75%. The outstanding balance and total availability at December 31, 2020 was $30.0 million and $0, respectively.
•
Fund II has a $40.0 million term loan secured by the real estate assets of City Point Phase II and guaranteed by the Company and the Operating Partnership. The outstanding balance of the Fund II term loan was $40.0 million at each of December 31, 2020 and 2019. Total availability was $0.0 at each of December 31, 2020 and 2019.
•
Fund IV has a $79.2 million bridge facility and a $5.0 million subscription line which was modified from the previous limit of $15.0 million during the fourth quarter of 2020. The bridge facility is guaranteed by the Operating partnership up to $50.8 million. The outstanding balance and total available credit of the Fund IV bridge facility was $79.2 million and $0, respectively, at each of December 31, 2020 and 2019. The outstanding balance and total availability of the Fund IV subscription line was $0.9 million and $0.5 million, respectively at December 31, 2020, reflecting letters of credit of $3.6 million. The outstanding balance and total availability of the Fund IV subscription line at December 31, 2019 was $8.4 million and $2.5 million, respectively, reflecting letters of credit of $4.1 million.
•
Fund V has a $150.0 million subscription line collateralized by Fund V’s unfunded capital commitments and to the extent of Acadia’s capital commitments, is guaranteed by the Operating Partnership. During the year ended December 31, 2020, the Company modified the $150.0 million Fund V Subscription line and extended the due date from May 2020 to May 2021. The outstanding balance and total available credit of the Fund V subscription line was $0.3 million and $128.2 million, respectively at December 31, 2020 reflecting letters of credit of $21.5 million. The outstanding balance and total available credit of the Fund V subscription line was $0 and $150.0 million, respectively at December 31, 2019.
Unsecured Revolving Line of Credit
The Company had a total of $101.1 million and $173.6 million, respectively, available under its $250.0 million Core Revolver, reflecting borrowings of $138.4 and $60.8 million and letters of credit of $10.5 million and $15.6 million at December 31, 2020 and 2019, respectively. At each of December 31, 2020 and 2019, all of the Core unsecured revolving line of credit was swapped to a fixed rate.
Scheduled Debt Principal Payments
The scheduled principal repayments, without regard to available extension options (described further below), of the Company’s consolidated indebtedness, as of December 31, 2020 are as follows (in thousands):
Year Ending December 31,
$
416,614
528,008
415,506
212,020
65,325
Thereafter
132,581
1,770,054
Unamortized premium
Net unamortized debt issuance costs
(6,763
)
Total indebtedness
$
1,763,839
The table above does not reflect available extension options (subject to customary conditions) on consolidated debt of $231.3 million contractually due in 2021, $266.3 million contractually due in 2022, and $41.5 million contractually due in 2023; all for which the Company has available options to extend by up to 12 months and for some an additional 12 months thereafter. However, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options.
See Note 4 for information about liabilities of the Company’s unconsolidated affiliates.
8. Financial Instruments and Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs
other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps and interest rate swaps; and Level 3, for financial instruments or other assets/liabilities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring the Company to develop its own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, the Company has also provided the unobservable inputs along with their weighted-average ranges.
Money Market Funds - The Company has money market funds, which at times have zero balances and are included in Cash and cash equivalents in the consolidated financial statements, and are comprised of government securities and/or U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values.
Equity Investments -Albertsons became publicly traded during 2020 (Note 4). Upon Albertsons’ IPO, the Company’s Investment in Albertsons has a readily determinable market value (traded on an exchange) and is being accounted for as a Level 1 investment.
Derivative Assets - The Company has derivative assets, which are included in Other assets, net on the consolidated balance sheets, and comprised of interest rate swaps and caps. The derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.
Derivative Liabilities - The Company has derivative liabilities, which are included in Accounts payable and other liabilities on the consolidated balance sheets and are comprised of interest rate swaps. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below.
Other than the Investment in Albertsons described above, the Company did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the year ended December 31, 2020 or 2019.
The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands):
December 31, 2020
December 31, 2019
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets
Money market funds
$
-
$
-
$
-
$
-
$
-
$
-
Derivative financial instruments
-
-
-
2,583
-
Investment in Albertsons (Note 4)
72,391
-
-
-
-
-
Liabilities
Derivative financial instruments
-
90,139
-
-
39,061
-
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Items Measured at Fair Value on a Nonrecurring Basis (Including Impairment Charges)
During 2020, the Company was impacted by the COVID-19 Pandemic (Note 1), which caused the Company to reduce its holding periods and forecasted operating income at certain properties. As a result, several impairments were recorded. Impairment charges for the periods presented are as follows (in thousands):
Property and Location
Owner
Triggering Event
Level 3 Inputs
Effective Date
Total
Acadia's Share
2020 Impairment Charges
Cortlandt Crossing, Mohegan Lake, NY
Fund III
Reduced holding period, reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Mar 31, 2020
$
27,402
$
6,726
654 Broadway, New York, NY
Fund III
Reduced holding period
Projections of: holding period, net operating income, cap rate, incremental costs
Mar 31, 2020
6,398
1,570
146 Geary Street, San Francisco, CA
Fund IV
Reduced holding period, reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Mar 31, 2020
6,718
1,553
801 Madison Avenue, New York, NY
Fund IV
Reduced holding period, reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Mar 31, 2020
11,031
2,551
717 N. Michigan Avenue, Chicago, IL
Fund IV
Reduced holding period, reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Dec 31, 2020
17,392
4,021
110 University, New York, NY
Fund IV
Reduced holding period, reduced projected operating income
Projections of: holding period, net operating income, cap rate, incremental costs
Dec 31, 2020
16,238
3,754
Fifth Wall Investment
Core
Decline in fair value
Projections of: reported fair value of net assets
Dec 31, 2020
Total 2020 Impairment Charges
$
85,598
$
20,594
2019 Impairment Charges
210 Bowery residential units
Fund IV
Reduced selling price
Contract sales price
Sep 30, 2019
$
$
210 Bowery residential units
Fund IV
Reduced selling price
Offering price
Jun 30, 2019
1,400
Total 2019 Impairment Charges
$
1,721
$
Derivative Financial Instruments
The Company had the following interest rate swaps and caps for the periods presented (dollars in thousands):
Strike Rate
Fair Value
Derivative
Instrument
Aggregate Notional Amount
Effective Date
Maturity Date
Low
High
Balance Sheet
Location
December 31,
December 31,
Core
Interest Rate Swaps
$
532,796
Dec 2012-Apr 2023
Jun 2021-Apr 2033
1.24
%
-
3.77
%
Other Liabilities (a)
$
(74,990
)
$
(33,750
)
Interest Rate Swap
39,352
Nov 2015
Jan 2021
1.31
%
-
1.31
%
Other Assets
-
$
572,148
$
(74,990
)
$
(33,294
)
Fund II
Interest Rate Swap
$
18,803
Oct 2014
Nov 2021
2.88
%
-
2.88
%
Other Liabilities
$
(219
)
$
(139
)
Interest Rate Cap
45,000
Mar 2019
Mar 2022
3.50
%
-
3.50
%
Other Assets
-
$
63,803
$
(219
)
$
(138
)
Fund III
Interest Rate Caps
$
39,470
Jan 2020 -Jan 2021
Jan 2021-Jul 2022
3.00
%
-
3.00
%
Other Assets (b)
$
-
$
-
Fund IV
Interest Rate Swaps
$
-
-
-
-
-
-
Other Assets
$
-
$
Interest Rate Swaps
66,590
Mar 2017 - Dec 2019
Apr 2022 - Dec 2022
1.48
%
-
4.00
%
Other Liabilities
(1,713
)
(812
)
Interest Rate Caps
77,400
July 2019 - Dec 2020
Jul 2021 - Dec 2022
3.00
%
-
3.50
%
Other Assets
-
$
143,990
$
(1,712
)
$
(790
)
Fund V
Interest Rate Swaps
$
-
-
-
-
-
-
Other Assets
$
-
$
2,104
Interest Rate Swaps
334,323
Jan 2018-Nov 2019
Feb 2021-Oct 2024
1.25
%
-
2.88
%
Other Liabilities
(13,217
)
(4,360
)
$
334,323
$
(13,217
)
$
(2,256
)
Total asset derivatives
$
$
2,583
Total liability derivatives
$
(90,139
)
$
(39,061
)
(a)
Includes one swap with an aggregate value of ($1.8) million at December 31, 2020, which was acquired during February 2020 with a notional value of $50.0 million and is not effective until April 2022. Includes one swap with an aggregate fair value of ($1.3) million at December 31, 2020, which was acquired during February 2020 with a notional value of $50.0 million and is not effective until April 2023.
(b)
Includes one cap with an aggregate fair value of zero at December 31, 2020, which was acquired during November 2020 with a notional value of zero and is not effective until January 2021.
All of the Company’s derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable-rate debt (Note 7). It is estimated that approximately $20.2 million included in Accumulated other comprehensive (loss) related to derivatives will be reclassified to interest expense within the next twelve months. As of December 31, 2020 and 2019, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated hedges.
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. The Company enters into derivative financial instruments to manage exposures that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
The Company is exposed to credit risk in the event of non-performance by the counterparties to the swaps if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions.
Credit Risk-Related Contingent Features
The Company has agreements with each of its swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its swaps, resulting in an acceleration of payment under the swaps.
Other Financial Instruments
The Company’s other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands, inclusive of amounts attributable to noncontrolling interests where applicable):
December 31, 2020
December 31, 2019
Level
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Notes Receivable (a)
$
101,450
$
102,135
$
114,943
$
113,422
Mortgage and Other Notes Payable (a)
1,131,315
1,111,354
1,179,503
1,191,281
Investment in non-traded equity securities (b)
1,726
1,456
1,778
57,964
Unsecured notes payable and Unsecured line of credit (c)
638,739
623,392
538,425
539,362
(a)
The Company determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the borrower or tenant, where applicable, and interest rate risk. The Company also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the borrower, the time until maturity and the current market interest rate environment.
(b)
Represents the Operating Partnership’s cost-method investment in Fifth Wall (Note 4). Fair value as of December 31, 2019 also represents Mervyns II’s cost-method Investment in Albertsons, which is carried at fair value at December 31, 2020 and, therefore, is no longer reflected in the table above.
(c)
The Company determined the estimated fair value of the unsecured notes payable and unsecured line of credit using quoted market prices in an open market with limited trading volume where available. In cases where there was no trading volume, the Company determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants.
The Company’s cash and cash equivalents, restricted cash, rents receivable, accounts payable and certain financial instruments included in other assets and other liabilities had fair values that approximated their carrying values at December 31, 2020 and 2019 due to their short maturity profiles.
9. Commitments and Contingencies
The Company is involved in various matters of litigation arising out of, or incident to, its business, including the litigation described in Note 7. While the Company is unable to predict with certainty the outcome of any particular matter, management does not expect, when such litigation is resolved, that the Company’s resulting exposure to loss contingencies, if any, will have a material adverse effect on its consolidated financial position.
Commitments and Guaranties
In conjunction with the development and expansion of various properties, the Company has entered into agreements with general contractors for the construction or development of properties aggregating approximately $32.7 million and $41.1 million as of December 31, 2020 and 2019, respectively.
At December 31, 2020 and 2019, the Company had letters of credit outstanding of $35.6 million and $19.8 million, respectively. The Company has not recorded any obligation associated with these letters of credit. The majority of the letters of credit are collateral for existing indebtedness and other obligations of the Company.
10. Shareholders’ Equity, Noncontrolling Interests and Other Comprehensive Loss
Common Shares and Units
In addition to the ATM Program activity discussed below, the Company completed the following transactions in its Common Shares during the year ended December 31, 2020:
•
The Company withheld 2,075 Restricted Shares to pay the employees’ statutory minimum income taxes due on the value of the portion of their Restricted Shares that vested.
•
The Company recognized Common Share and Common OP Unit-based compensation expense totaling $8.4 million in connection with Restricted Shares and Units (Note 13).
In addition to the share repurchase activity discussed below, the Company completed the following transactions in its Common Shares during the year ended December 31, 2019:
•
The Company withheld 2,468 Restricted Shares to pay the employees’ statutory minimum income taxes due on the value of the portion of their Restricted Shares that vested.
•
The Company recognized Common Share and Common OP Unit-based compensation expense totaling $8.8 million in connection with Restricted Shares and Units (Note 13).
ATM Program
The Company has an at-the-market equity issuance program (“ATM Program”) which provides the Company an efficient and low-cost vehicle for raising public equity to fund its capital needs. The Company entered into its current $250.0 million ATM Program (which replaced its prior program) in the second quarter of 2019 and also added an optional “forward purchase” component. The Company has not issued any shares on a forward basis during the year ended December 31, 2020. During the year ended December 31, 2019, the Company sold 5,164,055 Common Shares under its ATM Program for gross proceeds of $147.7 million, or $145.5 million net of issuance costs, at a weighted-average gross price per share of $28.61. During the year ended December 31, 2020, the Company did not sell any Common Shares under its ATM Program.
Share Repurchase Program
During 2018, the Company’s board of trustees (the “Board”) approved a new share repurchase program, which authorizes management, at its discretion, to repurchase up to $200.0 million of its outstanding Common Shares. The program does not obligate the Company to repurchase any specific number of Common Shares and may be discontinued or extended at any time. The Company did not repurchase any shares during the year ended December 31, 2019. During the first quarter of 2020, the Company repurchased 1,219,065 Common Shares for $22.4 million, inclusive of $0.1 million of fees, at a weighted average price per share of $18.29, under the share repurchase program, under which 122.6 million remains available at December 31, 2020.
Dividends and Distributions
The following table sets forth the distributions declared and/or paid during the periods presented:
Date Declared
Amount Per Share
Record Date
Payment Date
November 13, 2018
$
0.28
December 31, 2018
January 15, 2019
February 28, 2019
$
0.28
March 29, 2019
April 15, 2019
May 9, 2019
$
0.28
June 28, 2019
July 15, 2019
August 13, 2019
$
0.28
September 30, 2019
October 15, 2019
November 5, 2019
$
0.29
December 31, 2019
January 15, 2020
February 26, 2020
$
0.29
March 31, 2020
April 15, 2020
Beginning with the second quarter of 2020, the Board temporarily suspended distributions on its Common Shares and Common OP Units, which suspension the Board has determined to continue through the fourth quarter of 2020; however, distributions of $0.1 million were payable to preferred unit holders at each of June 30, 2020, September 30, 2020 and December 31, 2020. Assuming that current operating conditions continue to prevail, the Company currently expects to reinstate quarterly distributions in the first quarter of 2021, which would be subject to Board approval at that time.
Accumulated Other Comprehensive Loss
The following tables set forth the activity in accumulated other comprehensive loss for the years ended December 31, 2020, 2019 and 2018 (in thousands):
Gains or Losses
on Derivative
Instruments
Balance at January 1, 2020
$
(31,175
)
Other comprehensive loss before reclassifications - swap agreements
(74,236
)
Reclassification of realized interest on swap agreements
15,203
Net current period other comprehensive loss
(59,033
)
Net current period other comprehensive loss attributable to noncontrolling
interests
15,317
Balance at December 31, 2020
$
(74,891
)
Balance at January 1, 2019
$
Other comprehensive loss before reclassifications - swap agreements
(35,674
)
Reclassification of realized interest on swap agreements
(872
)
Net current period other comprehensive loss
(36,546
)
Net current period other comprehensive loss attributable to noncontrolling
interests
4,855
Balance at December 31, 2019
$
(31,175
)
Balance at January 1, 2018
$
2,614
Other comprehensive loss before reclassifications
(2,659
)
Reclassification of realized interest on swap agreements
Net current period other comprehensive loss
(2,588
)
Net current period other comprehensive income attributable to noncontrolling
interests
Balance at December 31, 2018
$
Noncontrolling Interests
The following tables summarize the change in the noncontrolling interests for the years ended December 31, 2020, 2019 and 2018 (dollars in thousands):
Noncontrolling
Interests in
Operating
Partnership (a)
Noncontrolling
Interests in
Partially-Owned
Affiliates (b)
Total
Balance at January 1, 2020
$
97,670
$
546,987
$
644,657
Distributions declared of $0.29 per Common OP Unit
(2,218
)
-
(2,218
)
Net income (loss) for the year ended December 31, 2020
(57,404
)
(57,279
)
Conversion of 407,594 Common OP Units to Common Shares by limited partners of the Operating Partnership
(6,544
)
-
(6,544
)
Other comprehensive loss - unrealized loss on valuation of swap agreements
(2,709
)
(18,246
)
(20,955
)
Cumulative effect of change in accounting principle (Note 1)
-
(11
)
(11
)
Acquisition of noncontrolling interest (Note 7)
-
15,918
15,918
Reclassification of realized interest expense on swap agreements
5,464
5,638
Noncontrolling interest contributions
-
52,674
52,674
Noncontrolling interest distributions
-
(27,574
)
(27,574
)
Employee Long-term Incentive Plan Unit Awards
10,130
-
10,130
Reallocation of noncontrolling interests (c)
(7,197
)
-
(7,197
)
Balance at December 31, 2020
$
89,431
$
517,808
$
607,239
Balance at January 1, 2019
$
104,223
$
518,219
$
622,442
Distributions declared of 1.13 per Common OP Unit
(7,124
)
-
(7,124
)
Net income (loss) for the year ended December 31, 2019
3,836
(35,677
)
(31,841
)
Conversion of 307,663 Common OP Units to Common Shares by limited partners of the Operating Partnership
(5,104
)
-
(5,104
)
Other comprehensive income - unrealized loss on valuation of swap agreements
(1,899
)
(3,036
)
(4,935
)
Reclassification of realized interest expense on swap agreements
(62
)
Noncontrolling interest contributions
-
161,628
161,628
Noncontrolling interest distributions
-
(94,289
)
(94,289
)
Employee Long-term Incentive Plan Unit Awards
10,411
-
10,411
Reallocation of noncontrolling interests (c)
(6,611
)
-
(6,611
)
Balance at December 31, 2019
$
97,670
$
546,987
$
644,657
Balance at January 1, 2018
$
102,921
$
545,519
$
648,440
Distributions declared of 1.09 per Common OP Unit
(6,888
)
-
(6,888
)
Net income (loss) for the year ended December 31, 2018
2,572
(49,709
)
(47,137
)
Conversion of 117,978 Common OP Units to Common Shares by limited partners of the Operating Partnership
(2,068
)
-
(2,068
)
Other comprehensive loss - unrealized loss on valuation of swap agreements
(129
)
(681
)
(810
)
Reclassification of realized interest expense on swap agreements
(3
)
Noncontrolling interest contributions
-
47,560
47,560
Noncontrolling interest distributions
-
(24,793
)
(24,793
)
Employee Long-term Incentive Plan Unit Awards
12,374
-
12,374
Rebalancing adjustment (c)
(4,556
)
-
(4,556
)
Balance at December 31, 2018
$
104,223
$
518,219
$
622,442
(a)
Noncontrolling interests in the Operating Partnership are comprised of (i) the limited partners’ 3,101,958, 3,250,603 and 3,329,640 Common OP Units at December 31, 2020, 2019 and 2018, respectively; (ii) 188 Series A Preferred OP Units at December 31, 2020, 2019 and 2018; (iii) 126,593 Series C Preferred OP Units at December 31, 2020, and 136,593 at December 31, 2019 and 2018; and (iv) 2,886,207, 2,673,484 and 2,569,044 LTIP units at December 31, 2020, 2019 and 2018, respectively, as discussed in Share Incentive Plan (Note 13). Distributions declared for Preferred OP Units are reflected in net income (loss) in the table above.
(b)
Noncontrolling interests in partially-owned affiliates comprise third-party interests in Funds II, III, IV and V, and Mervyns II, and five other subsidiaries.
(c)
Adjustment reflects the difference between the fair value of the consideration received or paid and the book value of the Common Shares, Common OP Units, Preferred OP Units, and LTIP Units involving changes in ownership.
Preferred OP Units
There were no issuances of Preferred OP Units during the year ended December 31, 2020.
In 1999 the Operating Partnership issued 1,580 Series A Preferred OP Units in connection with the acquisition of a property, which have a stated value of $1,000 per unit, and are entitled to a preferred quarterly distribution of the greater of (i) $22.50 (9.00% annually) per Series A Preferred OP Unit or (ii) the quarterly distribution attributable to a Series A Preferred OP Unit if such unit was converted into a Common OP Unit. Through December 31, 2020, 1,392 Series A Preferred OP Units were converted into 185,600 Common OP Units and then into Common Shares. The 188 remaining Series A Preferred OP Units are currently convertible into Common OP Units based on the stated value divided by $7.50. Either the Company or the holders can currently call for the conversion of the Series A Preferred OP Units at the lesser of $7.50 or the market price of the Common Shares as of the conversion date.
During 2016, the Operating Partnership issued 442,478 Common OP Units and 141,593 Series C Preferred OP Units to a third party to acquire Gotham Plaza (Note 4). The Series C Preferred OP Units have a value of $100.00 per unit and are entitled to a preferred quarterly distribution of $0.9375 per unit and are convertible into Common OP Units at a rate based on the share price at the time of conversion. If the share price is below $28.80 on the conversion date, each Series C Preferred OP Unit will be convertible into 3.4722 Common OP Units. If the share price is between $28.80 and $35.20 on the conversion date, each Series C Preferred OP Unit will be convertible into a number of Common OP Units equal to $100.00 divided by the closing share price. If the share price is above $35.20 on the conversion date, each Series C Preferred OP Unit will be convertible into 2.8409 Common OP Units. The Series C Preferred OP Units have a mandatory conversion date of December 31, 2025, at which time all units that have not been converted will automatically be converted into Common OP Units based on the same calculations. Through December 31, 2020, 5,000 Series C Preferred OP Units were converted into 17,165 Common OP Units and then into Common Shares.
11. Leases
Operating Leases
As Lessor
The Company is engaged in the operation of shopping centers and other retail properties that are either owned or, with respect to certain shopping centers, operated under long-term ground leases (see below) that expire at various dates through June 20, 2066, with renewal options. Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to sixty years and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volumes. During the year ended December 31, 2020, the Company earned $57.7 million in variable lease revenues, primarily for real estate taxes and common area maintenance charges, which are included in rental income in the consolidated statements of operations.
As Lessee
During the year ended December 31, 2020, the Company:
•
entered into one new office lease as lessee for which the lease commenced in the third quarter of 2020. The Company recorded a right-of-use asset and corresponding lease liability of $1.7 million
•
modified its 991 Madison master lease by converting the 49-year fixed term to a 15-year term. As a result of the modification, the lease was reclassified from a finance lease to an operating lease during the second quarter of 2020
•
consolidated one property within the BSP II portfolio, 102 E. Broughton, (Note 2, Note 4), which was subject to a ground lease classified as an operating lease, during the second quarter of 2020
•
recorded an impairment charge of $12.3 million on a right-of-use asset for a Fund IV property, 110 University Place (Note 8)
•
renewed one ground lease for Branch Plaza, an operating lease, for 22 years; and
•
modified its 1238 Wisconsin lease agreement for a reduced purchase price from $14.5 million to $11.5 million. As a result, remeasured and reduced its right-of-use asset and lease liability by $1.9 million in the fourth quarter of 2020.
During the year ended December 31, 2019, the Company:
•
recorded right-of-use assets and corresponding lease liabilities as lessee of $11.9 million and $12.8 million, respectively, for nine existing operating leases (for ground, office and equipment leases) and $82.6 million and $76.6 million, respectively, for four finance leases related to ground rentals including an existing capital lease which represented $77.0 million and $71.1 million, respectively, upon implementation of ASC Topic 842;
•
recorded three new finance leases effective January 1, 2019 upon the implementation of ASC 842. An assessment of triggering events whereby the Company’s cumulative leasehold investment made it reasonably certain that the Company would exercise its purchase options;
•
entered into a prepaid master lease on December 9, 2019 comprised of an operating lease component related to the land and a finance lease component related to the building. The property is referred to as “565 Broadway” within the Core Portfolio. The Company recorded a Right-of-use-asset-operating-lease of $4.9 million and a Right-of-use-asset-finance lease of $19.4 million; and
•
entered into a ground lease on May 1, 2019 which is an operating lease. The property is referred to as “110 University Place” and is within the Fund IV portfolio. The Company recorded a Right of use asset-operating lease of $45.3 million and a corresponding Lease liability-operating-lease of $45.3 million.
The Company recorded the following assets and liabilities in connection with acquisitions of leasehold interests:
Year Ended December 31,
Year Ended December 31,
Amounts recorded upon acquisition of leasehold interests:
Right of use asset - operating lease
$
-
$
50,147
Right of use asset - finance lease
-
19,422
Leasehold improvements
-
13,354
Lease intangibles (Note 6)
-
1,760
Lease liability - operating lease
-
(45,293
)
Acquisition-related intangible liabilities (Note 6)
-
(359
)
Cash paid upon acquisition of leasehold interests
$
-
$
39,031
Additional disclosures regarding the Company’s leases as lessee are as follows:
Year Ended December 31,
Lease Cost
Finance lease cost:
Amortization of right-of-use assets
$
1,595
$
1,603
Interest on lease liabilities
1,635
2,755
Subtotal
3,230
4,358
Operating lease cost
7,661
3,037
Variable lease cost
Total lease cost
$
11,034
$
7,514
Other Information
Weighted-average remaining lease term - finance leases (years)
33.4
42.5
Weighted-average remaining lease term - operating leases (years)
26.4
34.1
Weighted-average discount rate - finance leases
6.2
%
4.5
%
Weighted-average discount rate - operating leases
5.6
%
5.8
%
Right-of-use assets are included in Operating real estate (Note 2) in the consolidated balance sheet. Lease liabilities are included in Accounts payable and other liabilities in the consolidated balance sheet (Note 5). Operating lease cost comprises amortization of right-of-use assets for operating properties (related to ground rents) or amortization of right-of-use assets for office and corporate assets and is included in Property operating expense or General and administrative expense, respectively, in the consolidated statements of operations. Finance lease cost comprises amortization of right-of-use assets for certain ground leases, which is included in Property operating expense, as well as interest on lease liabilities, which is included in Interest expense in the consolidated statements of operations.
Lease Obligations
The scheduled future minimum (i) rental revenues from rental properties under the terms of non-cancelable tenant leases greater than one year (assuming no new or renegotiated leases or option extensions for such premises) and (ii) rental payments under the terms of all non-cancelable operating and finance leases in which the Company is the lessee, principally for office space, land and equipment, as of December 31, 2020, are summarized as follows (in thousands):
Minimum Rental Payments
Year Ending December 31,
Minimum Rental
Revenues (a)
Operating Leases (b)
Finance
Leases (b)
$
206,451
$
8,531
$
196,633
7,779
174,947
7,801
149,532
7,983
119,738
8,020
-
Thereafter
525,288
150,435
12,289
Total
$
1,372,589
$
190,549
$
12,634
(a)
Amount represents contractual lease maturities at December 31, 2020 including any extension options that management determined were reasonably certain of exercise. During the end of March 2020, numerous tenants were forced to suspend operations by government mandate as a result of the COVID-19 Pandemic. The Company has negotiated payment agreements with selected tenants which resulted in rent concessions or deferral of rents as discussed further in Note 1.
(b)
Minimum rental payments include $101.8 million of interest related to operating leases and $6.4 million related to finance leases and exclude options or renewals not reasonably certain of exercise.
During the years ended December 31, 2020, 2019 and 2018, no single tenant or property collectively comprised more than 10% of the Company’s consolidated total revenues.
12. Segment Reporting
The Company has three reportable segments: Core Portfolio, Funds and Structured Financing. The Company’s Core Portfolio consists primarily of high-quality retail properties located primarily in high-barrier-to-entry, densely-populated metropolitan areas with a long-term investment horizon. The Company’s Funds hold primarily retail real estate in which the Company co-invests with high-quality institutional investors. The Company’s Structured Financing segment consists of earnings and expenses related to notes and mortgages receivable which are held within the Core Portfolio or the Funds (Note 3). Fees earned by the Company as the general partner or managing member of the Funds are eliminated in the Company’s consolidated financial statements and are not presented in the Company’s segments.
The following tables set forth certain segment information for the Company (in thousands):
As of or for the Year Ended December 31, 2020
Core
Portfolio
Funds
Structured
Financing
Unallocated
Total
Revenues
$
160,262
$
95,222
$
-
$
-
$
255,484
Depreciation and amortization
(76,125
)
(73,668
)
-
-
(149,793
)
Property operating expenses, other operating and real estate taxes
(57,246
)
(42,854
)
-
-
(100,100
)
General and administrative expenses
-
-
-
(36,055
)
(36,055
)
Impairment charges
(419
)
(85,179
)
-
-
(85,598
)
Gain on disposition of properties
-
-
Operating income (loss)
26,646
(105,970
)
-
(36,055
)
(115,379
)
Interest income
-
-
8,979
-
8,979
Equity in losses of unconsolidated affiliates
inclusive of gains on disposition of properties
(874
)
(363
)
-
-
(1,237
)
Interest expense
(33,185
)
(38,875
)
-
-
(72,060
)
Realized and unrealized holding gains on investments and other
18,564
95,366
-
-
113,930
Income tax provision
-
-
-
(271
)
(271
)
Net income (loss)
11,151
(49,842
)
8,979
(36,326
)
(66,038
)
Net (income) loss attributable to noncontrolling interests
(5,837
)
63,116
-
-
57,279
Net income (loss) attributable to Acadia (a)
$
5,314
$
13,274
$
8,979
$
(36,326
)
$
(8,759
)
Real estate at cost (b)
$
2,330,116
$
1,764,172
$
-
$
-
$
4,094,288
Total Assets (b)
$
2,254,680
$
1,830,752
$
101,450
$
-
$
4,186,882
Cash paid for acquisition of real estate and leasehold interest
$
19,963
$
1,245
$
-
$
-
$
21,208
Cash paid for development and property improvement costs
$
11,170
$
29,313
$
-
$
-
$
40,483
As of or for the Year Ended December 31, 2019
Core
Portfolio
Funds
Structured
Financing
Unallocated
Total
Revenues
$
173,177
$
122,150
$
-
$
-
$
295,327
Depreciation and amortization
(61,819
)
(63,624
)
-
-
(125,443
)
Property operating expenses, other operating and real estate taxes
(47,032
)
(43,436
)
-
-
(90,468
)
General and administrative expenses
-
-
-
(35,416
)
(35,416
)
Impairment charges
-
(1,721
)
-
-
(1,721
)
Gain on disposition of properties
16,771
13,553
-
-
30,324
Operating income (loss)
81,097
26,922
-
(35,416
)
72,603
Interest income
-
-
7,988
-
7,988
Equity in earnings (loss) of unconsolidated affiliates
inclusive of gains on disposition of properties
9,020
(98
)
-
-
8,922
Interest expense
(28,304
)
(45,484
)
-
-
(73,788
)
Realized and unrealized holding (losses) gains on investments and other
6,620
-
-
6,947
Income tax provision
-
-
-
(1,468
)
(1,468
)
Net income (loss)
62,140
(12,040
)
7,988
(36,884
)
21,204
Net loss attributable to noncontrolling interests
31,504
-
-
31,841
Net income attributable to Acadia (a)
$
62,477
$
19,464
$
7,988
$
(36,884
)
$
53,045
Real estate at cost (b)
$
2,252,230
$
1,787,306
$
-
$
-
$
4,039,536
Total Assets (b)
$
2,350,833
$
1,843,338
$
114,943
$
-
$
4,309,114
Cash paid for acquisition of real estate
$
173,892
$
184,812
$
-
$
-
$
358,704
Cash paid for development and property improvement costs
$
22,724
$
66,546
$
-
$
-
$
89,270
As of or for the Year Ended December 31, 2018
Core
Portfolio
Funds
Structured
Financing
Unallocated
Total
Revenues
$
166,816
$
92,865
$
-
$
-
$
259,681
Depreciation and amortization
(60,903
)
(56,646
)
-
-
(117,549
)
Property operating expenses, other operating and real estate taxes
(44,060
)
(36,188
)
-
-
(80,248
)
General and administrative expenses
-
-
-
(34,343
)
(34,343
)
Gain on disposition of properties
-
5,140
-
-
5,140
Operating income (loss)
61,853
5,171
-
(34,343
)
32,681
Interest income
-
-
13,231
-
13,231
Equity in earnings of unconsolidated affiliates
inclusive of gains on disposition of properties
7,415
1,887
-
-
9,302
Interest expense
(27,575
)
(42,403
)
-
-
(69,978
)
Income tax provision
-
-
-
(934
)
(934
)
Net income
41,693
(35,345
)
13,231
(35,277
)
(15,698
)
Net loss attributable to noncontrolling interests
46,385
-
-
47,137
Net income attributable to Acadia (a)
$
42,445
$
11,040
$
13,231
$
(35,277
)
$
31,439
Real estate at cost
$
2,069,439
$
1,628,366
$
-
$
-
$
3,697,805
Total assets
$
2,232,695
$
1,616,472
$
109,613
$
-
$
3,958,780
Cash paid for acquisition of real estate
$
1,343
$
146,642
$
-
$
-
$
147,985
Cash paid for development and property improvement costs
$
32,662
$
62,172
$
-
$
-
$
94,834
(a)
Net income attributable to Acadia for the Core segment includes $2.2 million, $4.7 million and $4.1 million associated with one property, Town Center, for the years ended December 31, 2020, 2019 and 2018, respectively. These amounts include the results of three entities, including the unconsolidated Town Center venture and the consolidated Brandywine Holdings (Note 4) and Brandywine Maintenance Corp., which on a combined basis constitute the operating results of the shopping center. In April 2020, the Town Center venture was consolidated (Note 4).
(b)
Real estate at cost and total assets for the Funds segment include $641.7 million and $603.3 million, or $186.5 million and $174.7 million net of non-controlling interests, related to Fund II’s City Point property at December 31, 2020 and 2019, respectively.
13. Share Incentive and Other Compensation
Share Incentive Plan
On March 23, 2020, the Company’s Board approved the 2020 Share Incentive Plan (the “2020 Plan”), which increased the aggregate number of Common Shares authorized for issuance by 2,650,000 shares. The 2020 Plan authorizes the Company to issue options, Restricted Shares, LTIP Units and other securities (collectively “Awards”) to, among others, the Company’s officers, trustees and employees. At December 31, 2020 a total of 2,738,013 shares remained available to be issued under the Share Incentive Plan.
Restricted Shares and LTIP Units
During the year ended December 31, 2020, the Company issued 396,149 LTIP Units and 13,766 restricted share units (“Restricted Share Units”) to employees of the Company pursuant to the Share Incentive Plan. Certain of these equity awards were granted in performance-based Restricted Share Units or LTIP Units with market conditions as described below (“2019 Performance Shares”). These awards were measured at their fair value on the grant date, incorporating the following factors:
•
A portion of these annual equity awards is granted in performance-based Restricted Share Units or LTIP Units that may be earned based on the Company’s attainment of specified relative total shareholder returns (“Relative TSR”) hurdles.
•
In the event the Relative TSR percentile falls between the 25th percentile and the 50th percentile, the Relative TSR vesting percentage is determined using a straight-line linear interpolation between 50% and 100% and in the event that the Relative TSR percentile falls between the 50th percentile and 75th percentile, the Relative TSR vesting percentage is determined using a straight-line linear interpolation between 100% and 200%.
•
Two-thirds (2/3) of the performance-based LTIP Units will vest based on the Company’s total shareholder return (“TSR”) for the three -year forward-looking performance period relative to the constituents of the SNL U.S. REIT Retail Shopping Center Index and one-third (1/3) on the Company’s TSR for the three-year forward-looking performance period as compared to the constituents of the SNL U.S. REIT Retail Index (both on a non-weighted basis).
•
If the Company’s performance fails to achieve the aforementioned hurdles at the culmination of the three-year performance period, all performance-based shares will be forfeited. Any earned performance-based shares vest 60% at the end of the performance period, with the remaining 40% of shares vesting ratably over the next two years.
For valuation of the 2020 and 2019 Performance Shares, a Monte Carlo simulation was used to estimate the fair values based on probability of satisfying the market conditions and the projected share prices at the time of payments, discounted to the valuation dates over the three-year performance periods. The assumptions include volatility (21.0% and 19.6%) and risk-free interest rates of (1.4% and 2.5%) for 2020 and 2019, respectively. The total value of the 2020 and 2019 Performance Shares will be expensed over the vesting period regardless of the Company’s performance.
The total value of the above Restricted Share Units and LTIP Units as of the grant date was $10.4 million. Total long-term incentive compensation expense, including the expense related to the Share Incentive Plan, was $8.4 million, $8.8 million and $8.4 million for the years ended December 31, 2020, 2019, and 2018, respectively and is recorded in General and Administrative on the Consolidated Statements of Operations.
In addition, members of the Board have been issued shares and units under the Share Incentive Plan. During 2020, the Company issued 42,680 LTIP Units and 53,058 Restricted Shares to Trustees of the Company in connection with Trustee fees. Vesting with respect to 17,492 of the LTIP Units and 19,474 of the Restricted Shares will be on the first anniversary of the date of issuance and 25,188 of the LTIP Units and 33,584 of the Restricted Shares vest over three years with 33% vesting on each of the next three anniversaries of the issuance date. The Restricted Shares do not carry voting rights or other rights of Common Shares until vesting and may not be transferred, assigned or pledged until the recipients have a vested non-forfeitable right to such shares. Dividends are not paid currently on unvested Restricted Shares, but are paid cumulatively from the issuance date through the applicable vesting date of such Restricted Shares. Total trustee fee expense, including the expense related to the Share Incentive Plan, was $1.4 million for each of the years ended December 31, 2020 and 2019, respectively.
In 2009, the Company adopted the Long-Term Investment Alignment Program (the “Program”) pursuant to which the Company may grant awards to employees, entitling them to receive up to 25% of any potential future payments of Promote to the Operating Partnership from Funds
III, IV and V. As of December 31, 2020, the Company has granted such awards to employees representing 25% of the potential Promote payments from Fund III to the Operating Partnership and 22.8% of the potential Promote payments from Fund IV to the Operating Partnership and 4.2% of the potential Promote payments from Fund V to the Operating Partnership. Payments to senior executives under the Program require further Board approval at the time any potential payments are due pursuant to these grants. Compensation relating to these awards will be recognized in each reporting period in which Board approval is granted.
As payments to other employees are not subject to further Board approval, compensation relating to these awards will be recorded based on the estimated fair value at each reporting period in accordance with ASC Topic 718, Compensation- Stock Compensation. The awards in connection with Funds IV and V were determined to have no intrinsic value as of December 31, 2020.
The Company did not recognize any compensation expense for the years ended December 31, 2020, 2019, and 2018, related to the Program in connection with Fund III, Fund IV or Fund V.
A summary of the status of the Company’s unvested Restricted Shares and LTIP Units is presented below:
Unvested Restricted Shares and LTIP Units
Common
Restricted
Shares
Weighted
Grant-Date
Fair Value
LTIP Units
Weighted
Grant-Date
Fair Value
Unvested at January 1, 2018
41,327
$
26.92
910,099
$
28.28
Granted
22,817
23.65
425,880
26.80
Vested
(25,261
)
30.79
(431,827
)
29.72
Forfeited
(428
)
27.25
(12,266
)
28.57
Unvested at December 31, 2018
38,455
$
22.44
891,886
$
26.87
Granted
25,359
28.56
350,726
32.75
Vested
(21,424
)
27.12
(290,753
)
29.30
Forfeited
-
-
(15,679
)
31.49
Unvested at December 31, 2019
42,390
23.73
936,180
28.24
Granted
66,824
13.70
440,829
19.64
Vested
(19,264
)
27.72
(250,241
)
30.44
Forfeited
(39
)
24.77
(3,879
)
24.67
Unvested at December 31, 2020
89,911
$
15.42
1,122,889
$
24.38
The weighted-average grant date fair value for Restricted Shares and LTIP Units granted for the years ended December 31, 2020 and 2019 were $18.86 and $32.50, respectively. As of December 31, 2020, there was $15.1 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Share Incentive Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Shares that vested for the years ended December 31, 2020 and 2019, was $0.5 million and $0.6 million, respectively. The total fair value of LTIP Units that vested (LTIP units vest primarily in the first quarter) during the years ended December 31, 2020 and 2019, was $7.6 million and $8.5 million, respectively.
Other Plans
On a combined basis, the Company incurred a total of $0.3 million of compensation expense related to the following employee benefit plans for each of the years ended December 31, 2020, 2019 and 2018:
Employee Share Purchase Plan
The Acadia Realty Trust Employee Share Purchase Plan (the “Purchase Plan”), allows eligible employees of the Company to purchase Common Shares through payroll deductions. The Purchase Plan provides for employees to purchase Common Shares on a quarterly basis at a 15% discount to the closing price of the Company’s Common Shares on either the first day or the last day of the quarter, whichever is lower. A participant may not purchase more than $25,000 in Common Shares per year. Compensation expense will be recognized by the Company to the extent of the above discount to the closing price of the Common Shares with respect to the applicable quarter. A total of 5,266 and 2,320 Common Shares were purchased by employees under the Purchase Plan for the year ended December 31, 2020 and 2019, respectively.
Deferred Share Plan
During 2006, the Company adopted a Trustee Deferral and Distribution Election, under which the participating Trustees earn deferred compensation.
Employee 401(k) Plan
The Company maintains a 401(k) plan for employees under which the Company currently matches 50% of a plan participant’s contribution up to 6% of the employee’s annual salary. A plan participant may contribute up to a maximum of 15% of their compensation, up to $19,000, for the year ended December 31, 2020.
14. Federal Income Taxes
The Company has elected to qualify as a REIT in accordance with Sections 856 through 860 of the Code, and intends at all times to qualify as a REIT under the Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual REIT taxable income to its shareholders. As a REIT, the Company generally will not be subject to corporate Federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. As the Company distributed sufficient taxable income for the years ended December 31, 2020, 2019 and 2018, no U.S. Federal income or excise taxes were incurred. If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal income taxes at the regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property and Federal income and excise taxes on any undistributed taxable income. In addition, taxable income from non-REIT activities managed through the Company’s TRS’s is subject to Federal, state and local income taxes. No more than 20% of the value of our total assets may consist of the securities of one or more TRS.
In the normal course of business, the Company or one or more of its subsidiaries is subject to examination by Federal, state and local jurisdictions, in which it operates, where applicable. The Company expects to recognize interest and penalties related to uncertain tax positions, if any, as income tax expense. For the three years ended December 31, 2020, the Company recognized no material adjustments regarding its tax accounting treatment for uncertain tax provisions. As of December 31, 2020, the tax years that remain subject to examination by the major tax jurisdictions under applicable statutes of limitations are generally the year 2017 and forward.
Reconciliation of Net Income to Taxable Income
Reconciliation of GAAP net income attributable to Acadia to taxable income is as follows:
Year Ended December 31,
(in thousands)
Net income attributable to Acadia
$
(8,759
)
$
53,045
$
31,439
Deferred cancellation of indebtedness income
-
-
2,050
Deferred rental and other income (a)
(2,498
)
1,203
1,222
Book/tax difference - depreciation and amortization (a)
27,052
21,688
23,166
Straight-line rent and above- and below-market rent adjustments (a)
8,630
(10,949
)
(12,129
)
Book/tax differences - equity-based compensation
6,825
7,177
6,042
Joint venture equity in earnings, net (a)
(163
)
15,571
13,905
Impairment charges and reserves
18,734
-
-
Acquisition costs (a)
Gain on disposition of properties
4,936
2,375
-
Book/tax differences - miscellaneous
(253
)
(1,473
)
(2,821
)
Taxable income
$
54,518
$
88,700
$
63,200
Distributions declared (b)
$
24,937
$
96,310
$
89,122
(a)
Adjustments from certain subsidiaries and affiliates, which are consolidated for financial reporting but not for tax reporting, are included in the reconciliation item “Joint venture equity in earnings, net.”
(b)
The entire fourth quarter 2019 dividend of $25.2 million (paid in January 2020) will be attributed to 2020. Any additional distributions required for REIT qualification may be made through October 15, 2021.
Characterization of Distributions
The Company has determined that the cash distributed to the shareholders for the periods presented is characterized as follows for Federal income tax purposes:
Year Ended December 31,
Per Share
%
Per Share
%
Per Share
%
Ordinary income - Non-Section 199A
$
-
-
%
$
-
-
%
-
-
%
Ordinary income - Section 199A
0.520
%
0.820
%
0.870
%
Qualified dividend
-
-
%
-
-
%
-
-
%
Capital gain
0.060
%
0.240
%
-
-
%
Total (b)
$
0.580
%
$
1.060
%
0.870
%
(c)
The fourth quarter 2019 regular dividend was $0.29 per common share, all of which is allocable to 2020. The fourth quarter 2018 regular dividend was $0.28 per common share of which approximately $0.06 was allocable to 2018 and approximately $0.22 is allocable to 2019.
Taxable REIT Subsidiaries
Income taxes have been provided for using the liability method as required by ASC Topic 740, “Income Taxes.” The Company’s TRS income and provision for income taxes associated with the TRS for the periods presented are summarized as follows (in thousands):
Year Ended December 31,
TRS loss before income taxes
$
(3,856
)
$
(3,117
)
$
(2,609
)
(Provision) benefit for income taxes:
Federal
(377
)
State and local
(268
)
TRS net loss before noncontrolling interests
(3,748
)
(2,046
)
(2,960
)
Noncontrolling interests
(369
)
TRS net loss
$
(3,002
)
$
(2,415
)
$
(2,956
)
The income tax provision for the Company differs from the amount computed by applying the statutory Federal income tax rate to income before income taxes as follows. Amounts are not adjusted for temporary book/tax differences (in thousands):
Year Ended December 31,
Federal tax benefit at statutory tax rate
$
(810
)
$
(655
)
$
(548
)
TRS state and local taxes, net of Federal benefit
(244
)
(197
)
(165
)
Tax effect of:
Permanent differences, net
Prior year over-accrual, net
-
-
-
Effect of Tax Cuts and Jobs Act
-
-
-
Adjustment to deferred tax reserve
1,748
(1,530
)
Other
(131
)
(112
)
1,702
REIT state and local income and franchise taxes
Total provision for income taxes
$
$
1,468
$
As of December 31, 2020, and 2019, the Company’s deferred tax assets were $0 and $0.9 million net of applicable reserves of $2.6 million and $1.7 million, respectively and were comprised of capital loss carryovers of $0.1 and $0.1 million and net operating loss carryovers of $2.5 million and $2.5 million, respectively.
Under GAAP a reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if, based on the evidence available, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. During 2020, the Company determined that the realization of its deferred tax assets was not likely and as such, the Company recorded a valuation allowance against its deferred tax assets of $0.9 million.
15. (Loss) Earnings Per Common Share
Basic earnings (loss) per Common Share is computed by dividing net income (loss) attributable to Common Shareholders by the weighted average Common Shares outstanding (Note 10). During the periods presented, the Company had unvested LTIP Units which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic earnings per Common Share pursuant to the two-class method.
Diluted earnings per Common Share reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of Restricted Share Units issued under the Company’s Share Incentive Plans (Note 13). The effect of such shares is excluded from the calculation of earnings per share when anti-dilutive as indicated in the table below.
The effect of the conversion of Common OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share.
Year Ended December 31,
(dollars in thousands)
Numerator:
Net (loss) income attributable to Acadia
$
(8,759
)
$
53,045
$
31,439
Less: net income attributable to participating securities
(233
)
(413
)
(267
)
(Loss) income from continuing operations net of income attributable to participating securities
$
(8,992
)
$
52,632
$
31,172
Denominator:
Weighted average shares for basic earnings per share
86,441,922
84,435,826
82,080,159
Effect of dilutive securities:
Employee unvested restricted shares
-
-
-
Denominator for diluted earnings per share
86,441,922
84,435,826
82,080,159
Basic (loss) income and diluted earnings per Common Share from continuing operations attributable to Acadia
$
(0.10
)
$
0.62
$
0.38
Anti-Dilutive Shares Excluded from Denominator:
Series A Preferred OP Units
Series A Preferred OP Units - Common share equivalent
25,067
25,067
25,067
Series C Preferred OP Units
126,593
136,593
136,593
Series C Preferred OP Units - Common share equivalent
439,556
474,278
474,278
Restricted shares
76,394
40,821
36,879
16. Subsequent Events
COVID-19 Pandemic Update
The information provided about the impact of the COVID-19 Pandemic in Note 1 is updated for activity subsequent to December 31, 2020 as follows:
•
Tenant Operating Status (Unaudited) - The following table illustrates the percentage of the Company’s consolidated and unconsolidated ABR derived from stores which were open or partially open for business as of the dates indicated:
Percentage of Tenants Open for Business as of
June 30,
September 30,
December 31,
January 31,
Core
%
%
%
%
Fund
%
%
%
%
•
Rent Collections - The following table depicts collections of pre-COVID billings (original contract rents without regard to deferral or abatement agreements) and excludes the impact of any security deposits applied against tenant accounts as of the dates shown (Fund collections rates exclude data for non-managed properties):
Collections as of:
September 30, 2020 for
December 31, 2020 for
January 31, 2021 for
Second Quarter 2020
Third Quarter 2020
Second Quarter 2020
Third Quarter 2020
Fourth Quarter 2020
Fourth Quarter 2020
(Unaudited)
Core
%
%
%
%
%
%
Fund
%
%
%
%
%
%
•
Rent Concession Agreements - During January 2021, the Company executed 13 rent concession arrangements with tenants comprised of five agreements for rent deferral and eight agreements for rent forgiveness related to the COVID-19 Pandemic. The Company is currently determining how it will account for these agreements. At December 31, 2020, the Company had executed a total of 288 rent concession agreements related to the COVID-19 Pandemic (Note 1).
•
Bankruptcy Risk - Subsequent to December 31, 2020 and through January 31, 2021, there have been no additional bankruptcies of national retailers, that are tenants of the Company. As of January 31, 2021, for all bankruptcies announced during 2020, the Core Portfolio has four operating stores with ABR attributable to Acadia totaling $1.2 million, or 0.9% of Core ABR, and the Fund Portfolio has seven operating stores with ABR attributable to Acadia totaling $0.2 million, or 0.8% of Fund ABR, for which these leases may be rejected in the future.
Dispositions
On January 4, 2021, Fund V sold two outparcels at an unconsolidated property for a total of $10.5 million and repaid the $7.9 million mortgage on the property.
On January 29, 2021, the Company sold its consolidated Core Portfolio 60 Orange Street property for $16.4 million and repaid the $6.7 million mortgage on the property.
Loan Modifications
On February 12, 2021, Fund IV extended the maturity date on one of its mortgages payable by one year to February 2022. As part of the extension, the Company made a principal payment of $1.7 million.
On February 16, 2021, to address a liquidity covenant violation at December 31, 2020 (Note 7), Fund IV modified certain terms of its Bridge facility which had an outstanding balance of $79.2 million at December 31, 2020. In connection with the modification, Fund IV repaid $10.0 million at closing and agreed to repay an additional $5.0 million by September 1, 2021. In addition, the maturity date was extended from June 30, 2021 to December 31, 2021. Fund IV may exercise an option to extend the loan’s maturity to June 30, 2022, which would require an additional $5.0 million repayment.
ACADIA REALTY TRUST
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning of
Year
Charged to
Expenses
Adjustments
to Valuation
Accounts
Deductions
Balance at
End of Year
Year Ended December 31, 2020:
Allowance for deferred tax asset
$
1,748
$
-
$
$
-
$
2,599
Allowance for uncollectible accounts
11,408
46,844
(12,844
)
-
45,408
Allowance for notes receivable
-
-
Year Ended December 31, 2019:
Allowance for deferred tax asset
$
-
$
-
$
1,748
$
-
$
1,748
Allowance for uncollectible accounts
7,921
4,402
(915
)
-
11,408
Allowance for notes receivable
-
-
-
-
-
Year Ended December 31, 2018:
Allowance for deferred tax asset
$
1,530
$
-
$
(1,530
)
-
$
-
Allowance for uncollectible accounts
5,920
2,532
(531
)
-
7,921
Allowance for notes receivable
-
-
-
-
-
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2020
Initial Cost
to Company
Amount at Which
Carried at December 31, 2020
Description and
Location
Encumbrances
Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments
Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on which
Depreciation
in Latest
Statement of
Operations is
Compared
Core Portfolio:
Crescent Plaza
Brockton, MA
-
1,147
7,425
3,357
1,147
10,782
11,929
8,766
(a)
40 years
New Loudon Center
Latham, NY
-
4,161
14,736
18,897
19,402
16,143
(a)
40 years
Mark Plaza
Edwardsville, PA
-
-
3,396
-
-
3,396
3,396
3,074
(c)
40 years
Plaza 422
Lebanon, PA
-
3,004
2,809
5,813
6,003
5,298
(c)
40 years
Route 6 Mall
Honesdale, PA
-
1,664
-
12,515
1,664
12,515
14,179
10,658
(c)
40 years
Abington Towne Center
Abington, PA
-
3,197
3,872
7,069
7,868
4,444
(a)
40 years
Bloomfield Town Square
Bloomfield Hills, MI
-
3,207
13,774
22,705
3,207
36,479
39,686
25,390
(a)
40 years
Elmwood Park Shopping Center Elmwood Park, NJ
-
3,248
12,992
18,143
3,798
30,585
34,383
20,969
(a)
40 years
Merrillville Plaza
Hobart, IN
-
4,288
17,152
6,269
4,288
23,421
27,709
14,854
(a)
40 years
Marketplace of Absecon
Absecon, NJ
-
2,573
10,294
5,193
2,577
15,483
18,060
9,548
(a)
40 years
239 Greenwich Avenue
Greenwich, CT
26,212
1,817
15,846
1,086
1,817
16,932
18,749
9,190
(a)
40 years
Hobson West Plaza
Naperville, IL
-
1,793
7,172
5,308
1,793
12,480
14,273
6,374
(a)
40 years
Village Commons Shopping Center Smithtown, NY
-
3,229
12,917
5,238
3,229
18,155
21,384
11,063
(a)
40 years
Town Line Plaza
Rocky Hill, CT
-
3,510
8,008
11,489
12,396
9,505
(a)
40 years
Branch Shopping Center
Smithtown, NY
-
3,156
12,545
16,470
3,401
28,770
32,171
15,894
(a)
40 years
Methuen Shopping Center
Methuen, MA
-
3,826
1,695
5,516
6,477
3,057
(a)
40 years
The Gateway Shopping Center
South Burlington, VT
-
1,273
5,091
12,751
1,273
17,842
19,115
11,258
(a)
40 years
Mad River Station
Dayton, OH
-
2,350
9,404
2,254
2,350
11,658
14,008
6,827
(a)
40 years
Brandywine Holdings
Wilmington, DE
-
5,063
15,252
2,495
5,201
17,609
22,810
8,002
(a)
40 years
Bartow Avenue
Bronx, NY
-
1,691
5,803
1,331
1,691
7,134
8,825
3,647
(c)
40 years
Amboy Road
Staten Island, NY
-
-
11,909
3,195
-
15,104
15,104
8,911
(a)
40 years
Chestnut Hill
Philadelphia, PA
-
8,289
5,691
4,509
8,289
10,200
18,489
5,372
(a)
40 years
2914 Third Avenue
Bronx, NY
-
11,108
8,038
5,231
11,855
12,522
24,377
3,778
(a)
40 years
West Shore Expressway
Staten Island, NY
-
3,380
13,499
3,380
13,561
16,941
5,259
(a)
40 years
West 54th Street
Manhattan, NY
-
16,699
18,704
1,308
16,699
20,012
36,711
7,290
(a)
40 years
5-7 East 17th Street
Manhattan, NY
-
3,048
7,281
6,145
3,048
13,426
16,474
8,502
(a)
40 years
651-671 W Diversey
Chicago, IL
-
8,576
17,256
8,576
17,271
25,847
4,136
(a)
40 years
15 Mercer Street
Manhattan, NY
-
1,887
2,483
1,887
2,484
4,371
(a)
40 years
4401 White Plains
Bronx, NY
-
1,581
5,054
-
1,581
5,054
6,635
1,179
(a)
40 years
56 E. Walton
Chicago, IL
-
6,126
2,666
8,792
9,786
(a)
40 years
841 W. Armitage
Chicago, IL
-
1,989
2,411
3,139
(a)
40 years
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2020
Description and
Location
Encumbrances
Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments
Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on which
Depreciation
in Latest
Statement of
Operations is
Compared
2731 N. Clark
Chicago, IL
-
1,839
1,871
2,428
(a)
40 years
2140 N. Clybourn
Chicago, IL
-
-
1,094
(a)
40 years
853 W. Armitage
Chicago, IL
-
1,946
2,385
2,942
(a)
40 years
2299 N. Clybourn Avenue
Chicago, IL
-
-
(a)
40 years
843-45 W. Armitage
Chicago, IL
-
2,730
2,958
3,689
(a)
40 years
1525 W. Belmont Avenue
Chicago, IL
-
1,480
3,338
1,480
4,049
5,529
(a)
40 years
2206-08 N. Halsted
Chicago, IL
-
1,183
3,540
1,183
3,891
5,074
1,119
(a)
40 years
2633 N. Halsted
Chicago, IL
-
4,096
4,417
5,415
(a)
40 years
50-54 E. Walton
Chicago, IL
-
2,848
12,694
2,848
13,270
16,118
2,985
(a)
40 years
662 W. Diversey
Chicago, IL
-
1,713
1,603
1,713
1,613
3,326
(a)
40 years
837 W. Armitage
Chicago, IL
-
1,758
1,995
2,775
(a)
40 years
823 W. Armitage
Chicago, IL
-
1,149
1,244
1,961
(a)
40 years
851 W. Armitage
Chicago, IL
-
(a)
40 years
1240 W. Belmont Avenue
Chicago, IL
-
2,137
1,589
1,357
2,137
2,946
5,083
(a)
40 years
21 E. Chestnut
Chicago, IL
-
1,318
8,468
1,318
8,511
9,829
1,717
(a)
40 years
819 W. Armitage
Chicago, IL
-
1,266
1,408
2,198
(a)
40 years
1520 Milwaukee Avenue
Chicago, IL
-
2,110
1,306
2,110
1,596
3,706
(a)
40 years
330-340 River St
Cambridge, MA
10,875
8,404
14,235
-
8,404
14,235
22,639
3,282
(a)
40 years
Rhode Island Place Shopping Center Washington, D.C.
-
7,458
15,968
2,209
7,458
18,177
25,635
4,615
(a)
40 years
930 Rush Street
Chicago, IL
-
4,933
14,587
-
4,933
14,587
19,520
3,191
(a)
40 years
28 Jericho Turnpike
Westbury, NY
12,895
6,220
24,416
6,220
24,450
30,670
5,496
(a)
40 years
181 Main Street
Westport, CT
-
1,908
12,158
1,908
12,567
14,475
2,613
(a)
40 years
83 Spring Street
Manhattan, NY
-
1,754
9,200
1,754
9,201
10,955
1,955
(a)
40 years
60 Orange Street
Bloomfield, NJ
6,727
3,609
10,790
-
3,609
10,790
14,399
2,454
(a)
40 years
179-53 & 1801-03 Connecticut Avenue Washington, D.C.
-
11,690
10,135
1,167
11,690
11,302
22,992
2,567
(a)
40 years
639 West Diversey
Chicago, IL
-
4,429
6,102
1,082
4,429
7,184
11,613
1,735
(a)
40 years
664 North Michigan
Chicago, IL
-
15,240
65,331
15,240
65,633
80,873
12,866
(a)
40 years
8-12 E. Walton
Chicago, IL
-
5,398
15,601
5,398
16,578
21,976
3,425
(a)
40 years
3200-3204 M Street
Washington, DC
-
6,899
4,249
6,899
4,417
11,316
(a)
40 years
868 Broadway
Manhattan, NY
-
3,519
9,247
3,519
9,252
12,771
1,637
(a)
40 years
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2020
Description and
Location
Encumbrances
Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments
Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on which
Depreciation
in Latest
Statement of
Operations is
Compared
313-315 Bowery
Manhattan, NY
-
-
5,516
-
-
5,516
5,516
1,563
(a)
40 years
120 West Broadway
Manhattan, NY
-
-
32,819
1,167
-
33,986
33,986
4,009
(a)
40 years
11 E. Walton
Chicago, IL
-
16,744
28,346
16,744
29,130
45,874
5,124
(a)
40 years
61 Main Street
Westport, CT
-
4,578
2,645
1,740
4,578
4,385
8,963
(a)
40 years
865 W. North Avenue
Chicago, IL
-
1,893
11,594
3,729
1,893
15,323
17,216
1,983
(a)
40 years
152-154 Spring St.
Manhattan, NY
-
8,544
27,001
8,544
27,178
35,722
4,615
(a)
40 years
2520 Flatbush Ave
Brooklyn, NY
-
6,613
10,419
6,613
10,722
17,335
1,855
(a)
40 years
252-256 Greenwich Avenue
Greenwich, CT
-
10,175
12,641
10,175
13,599
23,774
2,404
(a)
40 years
Bedford Green
Bedford Hills, NY
-
12,425
32,730
4,445
13,763
35,837
49,600
6,381
(a)
40 years
131-135 Prince Street
Manhattan, NY
-
-
57,536
-
58,128
58,128
17,475
(a)
40 years
Shops at Grand Ave
Queens, NY
-
20,264
33,131
1,814
20,264
34,945
55,209
5,580
(a)
40 years
201 Needham Street
Newton, MA
-
4,550
4,459
4,550
4,564
9,114
(a)
40 years
City Center
San Francisco, CA
-
36,063
109,098
(20,435
)
26,386
98,340
124,726
17,050
(a)
40 years
163 Highland Avenue
Needham, MA
8,298
12,679
11,213
(107
)
12,529
11,256
23,785
1,775
(a)
40 years
Roosevelt Galleria
Chicago, IL
-
4,838
14,574
4,838
14,653
19,491
1,957
(a)
40 years
Route 202 Shopping Center
Wilmington, DE
-
-
6,346
-
6,847
6,847
1,463
(a)
40 years
991 Madison Avenue
Manhattan, NY
-
-
76,965
(75,359
)
-
1,606
1,606
(a)
40 years
165 Newbury Street
Boston, MA
-
1,918
3,980
-
1,918
3,980
5,898
(a)
40 years
Concord & Milwaukee
Chicago, IL
2,568
2,739
2,746
2,739
2,992
5,731
(a)
40 years
State & Washington
Chicago, IL
23,298
3,907
70,943
6,225
3,907
77,168
81,075
8,505
(a)
40 years
151 N. State Street
Chicago, IL
13,253
1,941
25,529
-
1,941
25,529
27,470
2,819
(a)
40 years
North & Kingsbury
Chicago, IL
11,756
18,731
16,292
18,731
16,956
35,687
1,868
(a)
40 years
Sullivan Center
Chicago, IL
50,000
13,443
137,327
1,481
13,443
138,808
152,251
15,288
(a)
40 years
California & Armitage
Chicago, IL
2,428
6,770
2,292
6,770
2,296
9,066
(a)
40 years
555 9th Street
San Francisco, CA
60,000
75,591
73,268
75,591
73,546
149,137
7,707
(a)
40 years
Market Square
Wilmington, DE
-
8,100
31,221
8,100
31,533
39,633
2,680
(a)
40 years
613-623 W. Diversey
Chicago, IL
-
10,061
2,773
11,123
10,061
13,896
23,957
3,689
(c)
40 years
51 Greene Street
Manhattan, NY
-
4,488
8,992
-
4,488
8,992
13,480
(a)
40 years
53 Greene Street
Manhattan, NY
-
3,605
12,177
-
3,605
12,177
15,782
(a)
40 years
41 Greene Street
Manhattan, NY
-
6,276
9,582
-
6,276
9,582
15,858
(a)
40 years
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2020
Description and
Location
Encumbrances
Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments
Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on which
Depreciation
in Latest
Statement of
Operations is
Compared
47 Greene Street
Manhattan, NY
-
6,265
16,758
-
6,265
16,758
23,023
(a)
40 years
849 W Armitage
Chicago, IL
-
2,731
-
2,731
3,568
(a)
40 years
912 W Armitage
Chicago, IL
-
2,868
-
2,868
3,850
(a)
40 years
Melrose Place Collection
Los Angeles, CA
-
20,490
26,788
-
20,490
26,788
47,278
(a)
40 years
45 Greene Street
Manhattan, NY
-
2,903
8,487
2,903
8,489
11,392
(a)
40 years
565 Broadway
Manhattan, NY
-
-
22,491
-
22,503
22,503
(a)
40 years
907 W Armitage
Chicago, IL
-
2,081
-
2,081
2,781
(a)
40 years
37 Greene Street
Manhattan, NY
-
6,721
9,119
-
6,721
9,119
15,840
(a)
40 years
917 W Armitage
Chicago, IL
-
2,368
-
2,368
3,269
(a)
40 years
Brandywine Town Center
Wilmington, DE
-
15,632
101,861
15,632
101,933
117,565
2,192
(a)
40 years
Fund II:
City Point
Brooklyn, NY
247,086
-
100,316
466,763
-
567,079
567,079
76,384
(c)
40 years
Fund III:
654 Broadway
Manhattan, NY
-
9,040
3,654
(2,126
)
5,034
5,534
10,568
1,853
(a)
40 years
640 Broadway
Manhattan, NY
35,970
12,503
19,960
16,526
12,503
36,486
48,989
8,203
(a)
40 years
Cortlandt Crossing
Mohegan Lake, NY
35,948
11,000
-
41,666
8,648
44,018
52,666
3,162
(c)
40 years
Fund IV:
210 Bowery
Manhattan, NY
-
1,875
5,625
(3,500
)
1,875
2,125
4,000
(c)
40 years
Paramus Plaza
Paramus, NJ
20,810
11,052
7,037
14,946
11,052
21,983
33,035
5,160
(a)
40 years
27 E. 61st Street
Manhattan, NY
-
4,813
14,438
8,424
4,813
22,862
27,675
1,781
(c)
40 years
17 E. 71st Street
Manhattan, NY
15,385
7,391
20,176
7,391
20,498
27,889
3,281
(a)
40 years
1035 Third Avenue
Manhattan, NY
-
12,759
37,431
5,753
14,099
41,844
55,943
6,880
(a)
40 years
801 Madison Avenue
Manhattan, NY
-
4,178
28,470
(5,185
)
2,922
24,541
27,463
2,599
(c)
40 years
2208-2216 Fillmore Street
San Francisco, CA
5,606
3,027
6,376
3,027
6,513
9,540
(a)
40 years
2207 Fillmore Street
San Francisco, CA
1,120
1,498
1,735
1,498
1,860
3,358
(a)
40 years
146 Geary St.
San Francisco, CA
22,900
9,500
28,500
(227
)
8,037
29,736
37,773
(a)
40 years
1964 Union Street
San Francisco, CA
1,456
1,688
2,056
3,744
4,307
(c)
40 years
Restaurants at Fort Point
Boston, MA
5,958
1,041
10,905
1,041
11,087
12,128
1,391
(a)
40 years
Wakeforest Crossing
Wake Forest, NC
22,949
7,570
24,829
7,570
25,403
32,973
3,438
(a)
40 years
Airport Mall
Bangor, ME
5,186
2,294
7,067
2,534
2,006
9,889
11,895
1,193
(a)
40 years
Dauphin Plaza
Harrisburg, PA
12,466
5,290
9,464
3,069
5,290
12,533
17,823
2,089
(a)
40 years
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2020
Description and
Location
Encumbrances
Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments
Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on which
Depreciation
in Latest
Statement of
Operations is
Compared
Mayfair Shopping Center
Philadelphia, PA
11,597
6,178
9,266
1,095
6,178
10,361
16,539
1,344
(a)
40 years
Shaw's Plaza
Waterville, ME
7,478
11,814
12,085
12,913
1,418
(a)
40 years
Wells Plaza
Wells, ME
5,587
1,892
2,585
1,892
3,069
4,961
(a)
40 years
717 N. Michigan
Chicago, IL
14,810
20,674
10,093
(4,251
)
17,652
8,864
26,516
1,021
(c)
40 years
Shaw's Plaza
North Windham, ME
5,551
1,876
6,696
1,876
6,752
8,628
(a)
40 years
Lincoln Place
Fairview Heights, IL
23,100
7,149
22,201
2,098
7,149
24,299
31,448
2,872
(a)
40 years
18 E. Broughton St.
Savannah, GA
2,032
1,513
1,535
2,144
(a)
40 years
20 E. Broughton St.
Savannah, GA
1,258
-
1,525
(a)
40 years
25 E. Broughton St.
Savannah, GA
3,302
1,324
2,459
1,324
2,821
4,145
(a)
40 years
109 W. Broughton St.
Savannah, GA
8,809
2,343
6,560
2,343
6,831
9,174
(a)
40 years
204-206 W. Broughton St.
Savannah, GA
1,031
(a)
40 years
216-218 W. Broughton St.
Savannah, GA
3,674
1,160
2,736
2,179
1,160
4,915
6,075
(a)
40 years
220 W. Broughton St.
Savannah, GA
2,416
1,799
1,109
2,908
3,527
(a)
40 years
223 W. Broughton St.
Savannah, GA
-
1,153
(a)
40 years
226-228 W. Broughton St.
Savannah, GA
2,551
1,900
1,934
2,594
(a)
40 years
309/311 W. Broughton St.
Savannah, GA
3,619
1,160
2,695
-
1,160
2,695
3,855
(a)
40 years
110 University
Manhattan, NY
-
-
1,370
(361
)
-
1,009
1,009
(a)
40 years
230-240 W. Broughton St.
Savannah, GA
-
2,185
9,597
2,185
9,601
11,786
(a)
40 years
102 E. Broughton St.
Savannah, GA
-
-
-
-
(a)
40 years
Fund V:
Plaza Santa Fe
Santa Fe, NM
22,893
-
28,214
-
28,894
28,894
2,886
(a)
40 years
Hickory Ridge
Hickory, NC
29,876
7,852
29,998
1,472
7,852
31,470
39,322
3,140
(a)
40 years
New Towne Plaza
Canton, MI
16,688
5,040
17,391
5,040
18,117
23,157
1,756
(a)
40 years
Fairlane Green
Allen Park, MI
40,300
18,121
37,143
18,121
37,467
55,588
3,096
(a)
40 years
Trussville Promenade
Birmingham, AL
29,370
7,587
34,285
7,587
34,328
41,915
2,652
(a)
40 years
Elk Grove Commons
Elk Grove, CA
41,500
6,204
48,008
6,204
48,502
54,706
3,079
(a)
40 years
Hiram Pavilion
Hiram, GA
28,830
13,029
25,446
13,029
25,705
38,734
1,800
(a)
40 years
Palm Coast Landing
Palm Coast, FL
26,500
7,066
27,299
7,066
27,613
34,679
1,393
(a)
40 years
Lincoln Commons
Lincoln, RI
38,820
14,429
34,417
14,429
34,733
49,162
1,561
(a)
40 years
Landstown Commons
Virginia Beach, VA
60,900
10,222
69,005
10,222
69,681
79,903
2,632
(a)
40 years
ACADIA REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
to Company
Amount at Which
Carried at December 31, 2020
Description and
Location
Encumbrances
Land
Buildings &
Improvements
Increase
(Decrease)
in Net
Investments
Land
Buildings &
Improvements
Total
Accumulated
Depreciation
Date of
Acquisition (a)
Construction (c)
Life on which
Depreciation
in Latest
Statement of
Operations is
Compared
Real Estate Under Development
37,190
73,469
25,347
148,533
83,146
164,203
247,349
-
Unamortized Loan Costs
(6,507
)
-
-
-
-
-
-
-
Unamortized Premium
-
-
-
-
-
-
-
Total
$
1,125,356
$
867,524
$
2,395,406
$
831,358
$
859,421
$
3,234,867
$
4,094,288
$
586,800
Notes:
1.
Depreciation on buildings and improvements reflected in the consolidated statements of operations is calculated over the estimated useful life of the assets as follows: Buildings at 40 years and improvements at the shorter of lease term or useful life.
2.
The aggregate gross cost of property included above for Federal income tax purposes was approximately $4.2 billion as of December 31, 2020.
The following table reconciles the activity for real estate properties from January 1, 2018 to December 31, 2020 (in thousands):
Year Ended December 31,
Balance at beginning of year
$
4,039,536
$
3,697,805
$
3,466,482
Improvements and other
75,246
97,000
99,594
Property acquisitions
19,109
303,884
134,559
Property dispositions or held for sale assets
(19,659
)
(84,243
)
(34,666
)
Right-of-use assets - finance leases obtained and reclassified
(76,965
)
102,055
-
Capital lease reclassified as Right-of-use assets - finance lease
-
(76,965
)
-
Consolidation of previously unconsolidated investments
129,863
-
31,836
Impairment charges
(72,842
)
-
-
Balance at end of year
$
4,094,288
$
4,039,536
$
3,697,805
The following table reconciles accumulated depreciation from January 1, 2018 to December 31, 2020 (in thousands):
Year Ended December 31,
Balance at beginning of year
$
490,227
$
416,657
$
339,862
Depreciation related to real estate
104,049
85,317
78,453
Property dispositions
(939
)
(11,747
)
(1,658
)
Right-of-use assets - finance leases reclassified
(6,537
)
-
-
Balance at end of year
$
586,800
$
490,227
$
416,657
ACADIA REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2020
(in thousands)
Description
Effective
Interest Rate
Final Maturity
Date
Face Amount
of Notes
Receivable
Net Carrying
Amount of
Notes
Receivable
as of
December 31,
First Mortgage Loan
6.00%
4/1/2020
$
17,810
$
17,802
Mezzanine Loan
18.00%
7/1/2020
5,306
5,306
Other
3.16%
4/10/2021
First Mortgage Loan
5.50%
10/28/2021
13,530
13,530
Mezzanine Loan
9.00%
1/13/2023
54,000
54,000
Other
4.65%
4/12/2026
6,000
6,000
Mezzanine Loan
8.00%
12/11/2027
5,000
5,000
Total
$
102,108
102,100
Allowance for credit loss
(650
)
Net carrying amount of notes receivable
$
101,450
The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company's loan in relation to other debt secured by the collateral, the personal guarantees of the borrower and the prospects of the borrower.
The following table reconciles the activity for loans on real estate from January 1, 2018 to December 31, 2020 (in thousands):
Reconciliation of Loans on Real Estate
Year Ended December 31,
Balance at beginning of year
$
114,943
$
111,775
$
160,991
Additions
59,585
18,418
3,805
Repayments
-
(15,250
)
(31,000
)
Conversion to real estate through receipt of deed
(72,428
)
-
(22,021
)
Allowance for credit loss
(650
)
-
-
Balance at end of year
$
101,450
$
114,943
$
111,775

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management of Acadia Realty Trust is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13(a)-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020 as required by the Securities Exchange Act of 1934 Rule 13(a)-15(c). In making this assessment, we used the criteria set forth in the framework in Internal Control-Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Based on our evaluation under the COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
BDO USA, LLP, an independent registered public accounting firm that audited our Financial Statements included in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2020, which also appears in this Item 9A.
Acadia Realty Trust
Rye, New York
February 22, 2021
Changes in Internal Control Over Financial Reporting
During the three months ended December 31, 2020, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of Acadia Realty Trust
Opinion on Internal Control over Financial Reporting
We have audited Acadia Realty Trust and subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019 the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedules, and our report dated February 22, 2021, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
New York, New York
February 22, 2021

---

ITEM 9B. OTHER INFORMATION
ITEM 9B.
OTHER INFORMATION.
None.
PART III
In accordance with the rules of the SEC, certain information required by Part III is omitted and is incorporated by reference into this Report from our definitive proxy statement relating to our 2021 annual meeting of shareholders (our “2021 Proxy Statement”) that we intend to file with the SEC no later than April 30, 2021.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information under the following headings in the 2021 Proxy Statement is incorporated herein by reference:
•
“PROPOSAL 1 - ELECTION OF TRUSTEES”
•
“MANAGEMENT”
•
“DELINQUENT SECTION 16(a) REPORTS”

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.
EXECUTIVE COMPENSATION.
The information under the following headings in the 2021 Proxy Statement is incorporated herein by reference:
•
“ACADIA REALTY TRUST COMPENSATION COMMITTEE REPORT”
•
“COMPENSATION DISCUSSION AND ANALYSIS”
•
“BOARD OF TRUSTEES COMPENSATION”
•
“COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION”

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the heading “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in the 2021 Proxy Statement is incorporated herein by reference.
The information under Item 5. of this Report under the heading “(c) Securities authorized for issuance under equity compensation plans” is incorporated herein by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information under the following headings in the 2021 Proxy Statement is incorporated herein by reference:
•
“CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS”
•
“PROPOSAL 1 - ELECTION OF TRUSTEES-Trustee Independence”

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information under the heading “AUDIT COMMITTEE INFORMATION” in the 2021 Proxy Statement is incorporated herein by reference.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
1.
Financial Statements: See “Index to Financial Statements” at Item 8.
2.
Financial Statement Schedule: See “Schedule II-Valuation and Qualifying Accounts” at Item 8.
3.
Financial Statement Schedule: See “Schedule III-Real Estate and Accumulated Depreciation” at Item 8.
4.
Financial Statement Schedule: See “Schedule IV-Mortgage Loans on Real Estate” at Item 8.
5.
Exhibits: The index of exhibits below is incorporated herein by reference.
The following is an index to all exhibits including (i) those filed with this Report and (ii) those incorporated by reference herein:
Exhibit
No.
Description
Method of Filing
3.1
Declaration of Trust of the Company
Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
3.2
First Amendment to Declaration of Trust of the Company
Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
3.3
Second Amendment to Declaration of Trust of the Company
Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
3.4
Third Amendment to Declaration of Trust of the Company
Incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
3.5
Fourth Amendment to Declaration of Trust
Incorporated by reference to Exhibit 3.1 (a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
3.6
Fifth Amendment to Declaration of Trust
Incorporated by reference to Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
3.7
Sixth Amendment to Declaration of Trust
Incorporated by reference to Exhibit 3.01 to the Company’s Current Report on Form 8-K filing on July 28, 2017.
3.8
Articles Supplementary
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 9, 2017.
3.9
Amended and Restated Bylaws of the Company
Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 18, 2013.
3.10
Amendment No. 1 to Amended and Restated Bylaws of the Company
Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 29, 2014.
4.1
Description of Acadia Realty Trust Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended
Filed herewith.
10.1*
Acadia Realty Trust 2020 Share Incentive Plan
Incorporated by reference to page 63 of the Company’s 2020 Definitive Proxy Statement filed with the SEC on March 24, 2020
10.2*
Description of Long-Term Investment Alignment Program
Incorporated by reference to page 20 to the Company’s 2009 Annual Proxy Statement filed with the SEC April 9, 2009.
10.3*
Amended and Restated Employment Agreement between the Company and Kenneth F. Bernstein
Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 1, 2014.
Exhibit
No.
Description
Method of Filing
10.4*
Form of Second Amended and Restated Severance Agreement, effective as of February 26, 2018, with each of: John Gottfried, Senior Vice President and Chief Financial Officer; Jason Blacksberg, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary; Christopher Conlon, Executive Vice President and Chief Operating Officer and Joseph M. Napolitano, Senior Vice President and Chief Administrative Officer
Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
10.5*
Form of 2018 Long-Term Incentive Plan Award Agreement (time- and performance-based)
Incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
10.6*
Form of Assignments and Assumptions of Carried Interest with respect to the Company's Long-Term Incentive Alignment Program
Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.
10.7*
Form of Omnibus Amendment to the Series of Assignments and Assumptions of Carried Interest with respect to the Company's Long-Term Incentive Alignment Program
Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.
10.8*
Form of 2018 Long-Term Incentive Plan Award Agreement (Time-Based Only)
Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
10.9
Form of Long-Term Incentive Plan Award Agreement (Time-Based Only) (Chief Executive Officer)
Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
10.10
Form of Long-Term Incentive Plan Award Agreement (Time and Performance Based) (Chief Executive Officer)
Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
10.11
Amended and Restated Credit Agreement, dated as of February 20, 2018, among Acadia Realty Limited Partnership, as borrower, Acadia Realty Trust and certain subsidiaries of Acadia Realty Limited Partnership from time to time party thereto, as guarantors, Bank of America, N.A., as administrative agent, swing line lender, L/C issuer, and as a lender, PNC Bank, National Association and Wells Fargo Bank, National Association, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as a joint lead arranger and sole bookrunner and PNC Bank, National Association and Wells Fargo Securities, LLC, as joint lead arrangers
Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
10.12
First Amendment, dated April 2, 2019, to Amended and Restated Credit Agreement, dated as of February 20, 2018, among Acadia Realty Limited Partnership, as borrower, Acadia Realty Trust and certain subsidiaries of Acadia Realty Limited Partnership from time to time party thereto, as guarantors, Bank of America, N.A., as administrative agent, swing line lender, L/C issuer, and as lender, PNC Bank, National Association and Wells Fargo Bank, National Association, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arranger and sole bookrunner and PNC Bank, National Association and Wells Fargo Securities, LLC, as joint lead arrangers
Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
Exhibit
No.
Description
Method of Filing
10.13
Second Amendment, dated October 8, 2019, to Amended and Restated Credit Agreement, dated as of February 20, 2018, among Acadia Realty Limited Partnership, as borrower, Acadia Realty Trust and certain subsidiaries of Acadia Realty Limited Partnership from time to time party thereto, as guarantors, Bank of America, N.A., as administrative agent, swing line lender, L/C issuer, and as lender, PNC Bank, National Association and Wells Fargo Bank, National Association, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arranger and sole bookrunner and PNC Bank, National Association and Wells Fargo Securities, LLC, as joint lead arrangers, as amended to date
Incorporated by reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on October 11, 2019.
10.14
Third Amendment, dated December 17, 2020, to Amended and Restated Credit Agreement, dated as of February 20, 2018 among Acadia Realty Limited Partnership, as borrower, Acadia Realty Trust and certain subsidiaries of Acadia Realty Limited Partnership from time to time party thereto, as guarantors, Bank of America, N.A., as administrative agent, swing line lender, L/C issuer, and as lender, PNC Bank, National Association and Wells Fargo Bank, National Association, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arranger and sole bookrunner and PNC Bank, National Association and Wells Fargo Securities, LLC, as joint lead arrangers, as amended to date
Filed herewith
List of Subsidiaries of Acadia Realty Trust
Filed herewith
23.1
Consent of Registered Public Accounting Firm to incorporation by reference its reports into Forms S-3 and Forms S-8
Filed herewith
31.1
Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
99.1
Amended and Restated Agreement of Limited Partnership Agreement dated July 23, 2019
Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019
99.2
Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership
Incorporated by reference to Exhibit 10.1(C) to the Company's Annual Report on Form 10-K filed for the year ended December 31, 1999.
Exhibit
No.
Description
Method of Filing
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Filed herewith
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Document
Filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definitions Document
Filed herewith
101.LAB
Inline XBRL Taxonomy Extension Labels Document
Filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Document
Filed herewith
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
Filed herewith
*
The referenced exhibit is a management contract or compensation plan or arrangement.