AKR

ACADIA REALTY TRUST - 10-Q Summary (Period Ended June 30, 2006)

Business Context and Reporting Period

Acadia Realty Trust is a fully integrated, self-managed Real Estate Investment Trust (REIT) focused on neighborhood and community shopping centers, primarily in the Northeast, Mid-Atlantic, and Midwestern United States. As of June 30, 2006, the Company operated 76 properties. This report covers the quarterly and six-month periods ended June 30, 2006. A significant accounting change occurred effective January 1, 2006, with the adoption of EITF 04-5, requiring the consolidation of Fund I, Fund II, Mervyns I, and Mervyns II investments, which were previously accounted for under the equity method.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 19% to $49.7 million for the six months ended June 30, 2006, compared to $49.3 million in the prior year. This growth was driven by new acquisitions (Amboy, Clark & Diversey, A&P Shopping Plaza) and increased interest income.
• Net Income: Net income rose to $9.2 million from $8.8 million in the prior year period. This increase was significantly aided by a $7.1 million equity in earnings from unconsolidated affiliates (primarily Mervyns investments), compared to $0.4 million in 2005.
• Operating Expenses: Total operating expenses increased 18% to $35.9 million. General and administrative expenses rose 46% due to increased compensation and infrastructure expansion related to Fund activities.
• Discontinued Operations: The Company reported income from discontinued operations of $0.7 million for the six months ended June 30, 2006, compared to a loss of $0.1 million in the prior year, reflecting the sale of the Berlin Shopping Center in 2005 and current marketing of Soundview Marketplace and Bradford Towne Centre.

Guidance, Outlook, and Risks

Management Commentary: Management emphasizes a strategy of internal growth through redevelopment and external growth via disciplined acquisitions. The Company successfully recapitalized the Brandywine Portfolio in January 2006, triggering a "Promote" distribution structure that increases the Company's share of future cash flows from Fund I.

Liquidity and Capital: The Company maintains approximately $43.0 million in additional capacity under existing debt facilities and $82.1 million under Fund II facilities. Cash on hand is $55.1 million. The Company anticipates cash flow from operations will cover debt service and distribution requirements.

Risks and Contingencies:

• Interest Rate Risk: $54.9 million of debt matures in 2007. A 100 basis point increase in LIBOR would increase interest expense by approximately $0.6 million on floating debt.
• Levitz Investment: The Company converted a $20 million preferred equity investment in Levitz SL to a $31.3 million mortgage loan. While Levitz is in Chapter 11 bankruptcy, management believes the underlying real estate value is sufficient to recover the loan.
• Asset Sales: The Company is marketing Soundview Marketplace and Bradford Towne Centre for sale, intending to defer taxable gains under Section 1031.

Investor Verification Checklist

• Accounting Change Impact: Verify the comparability of 2005 results, which have been retrospectively adjusted to reflect the consolidation of Fund I and Fund II under EITF 04-5.
• Debt Maturity Wall: Confirm refinancing plans for the $54.9 million of debt maturing in 2007 and the associated interest rate exposure.
• Levitz Loan Security: Assess the valuation of the real estate collateral securing the $31.3 million loan to Levitz SL given the borrower's bankruptcy status.
• FFO vs. Net Income: Review the reconciliation of Net Income to Funds from Operations (FFO), noting the significant impact of depreciation and gains on sales of depreciated property.
• Discontinued Operations: Monitor the status of the Soundview Marketplace and Bradford Towne Centre sales to understand future cash flow impacts.