AKR

ACADIA REALTY TRUST - 10-Q Summary (Period Ended Sept 30, 2005)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2005. Acadia Realty Trust is a fully integrated, self-managed Real Estate Investment Trust (REIT) focused on neighborhood and community shopping centers and multi-family properties. As of the reporting date, the Company controlled 71 properties (69 shopping centers and 2 multi-family) primarily located in the Northeast, Mid-Atlantic, and Midwest regions. The Company operates through its Operating Partnership, in which it holds a 98% interest.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 15% year-over-year. This was driven by a 152% increase in management fee income (due to Fund II activity and Klaff contract acquisitions) and a 178% increase in interest income (from the Levitz preferred equity investment and notes receivable).
• Profitability: Net income rose 68% to $16.0 million. A significant contributor was a 287% increase in "Equity in earnings of unconsolidated partnerships," largely due to gains from the sale of Mervyn's locations and bankruptcy proceeds from Penn Traffic.
• Expense Increases: General and administrative expenses rose 36% due to infrastructure expansion for fund management. Depreciation and amortization increased 8% following the acquisition of the Amboy Road shopping center.
• Discontinued Operations: The Company reported a loss of $0.7 million from discontinued operations, including a $0.8 million impairment charge on the Berlin Shopping Center prior to its sale in July 2005.
• Debt Expansion: Mortgage notes payable increased by $53.4 million to $206.8 million to fund acquisitions and refinancing activities.

Outlook, Risks, and Unusual Items

• Levitz Bankruptcy Risk: In October 2005 (post-period), Levitz Furniture filed for Chapter 11 bankruptcy. The Company holds a $19.5 million preferred equity investment in Levitz SL. Management believes the underlying real estate value is sufficient to recover the investment and return, so no reserve was recorded as of September 30, 2005.
• Acquisition Activity: The Company is actively deploying capital through Fund II and the Retailer Controlled Property Venture (RCP Venture). Notable recent acquisitions include 260 East 161st Street in the Bronx ($49.4 million) and 4650 Broadway in Manhattan ($25.0 million).
• Debt Maturities: No debt matures in 2005 or 2006. Approximately $17.5 million is scheduled to mature in 2007, requiring refinancing. The Company currently has $54.0 million of additional capacity under existing debt facilities.
• Accounting Changes: The Company is assessing the impact of EITF 04-5 regarding the consolidation of limited partnerships, though management notes there would be no impact on net income if consolidation were required for current funds.

Investor Verification Checklist

• Levitz Exposure: Verify the status of the $19.5 million preferred equity investment in Levitz SL following the October 2005 bankruptcy filing and the adequacy of the underlying collateral.
• Debt Refinancing: Monitor the refinancing of the $17.5 million debt maturing in 2007 and potential interest rate increases on variable-rate debt ($36.5 million outstanding).
• FFO vs. Net Income: Review the reconciliation of Net Income to Funds from Operations (FFO), noting the significant impact of non-cash depreciation and gains from unconsolidated partnerships.
• Capital Deployment: Track the drawdown of the $300 million committed capital in Fund II and the progress of redevelopment projects in the New York Urban/Infill initiative.
• Dividend Coverage: Confirm that operating cash flows remain sufficient to cover the quarterly dividend of $0.1725 per share and distributions to Operating Partnership unitholders.