AKR

ACADIA REALTY TRUST - 10-Q Summary (Q2 2010)

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2010. Acadia Realty Trust is a self-managed equity REIT focused on retail properties, including neighborhood shopping centers, mixed-use developments, and self-storage facilities. The portfolio consists of a Core Portfolio and three Opportunity Funds (Fund I, II, and III). As of June 30, 2010, the Company operated 78 properties primarily in the Northeast, Mid-Atlantic, and Midwestern United States.

Key Financial Metrics

Material Changes vs. Prior Period

• Significant Non-Cash Gain: Net income for the six months ended June 30, 2010, was significantly higher than the prior year primarily due to a $33.8 million non-cash gain on bargain purchase. This resulted from Fund II acquiring the remaining interest in the CityPoint redevelopment project in Brooklyn, NY, and consolidating it at fair market value.
• Revenue Growth: Total revenues increased 6.6% year-over-year, driven by rental income growth in the Opportunity Funds and Storage Portfolio, partially offset by vacancies in the Core Portfolio.
• Operating Expenses: Total operating expenses decreased slightly to $52.0 million from $54.8 million in the prior year, aided by the absence of a $2.4 million "Other expense" related to abandoned project costs recorded in 2009.
• Debt Profile: Total debt increased by approximately $29 million. The Company utilized $17.0 million in draws on the Fund III subscription line and assumed $19.6 million in mortgage debt related to the CityPoint acquisition.

Outlook, Risks, and Management Commentary

• Acquisition Activity: Management highlighted the consolidation of CityPoint as a strategic move to control a mixed-use redevelopment project. The Company continues to focus on the New York Urban Infill Redevelopment Initiative and the Retailer Controlled Property (RCP) Venture.
• Liquidity and Debt Maturities: The Company has $102.4 million of debt maturing in 2010. Management believes it can refinance or extend these loans, citing $104.9 million in available credit capacity and $78.9 million in cash on hand. However, the filing notes that refinancing may be difficult given the current credit market environment.
• Legal Proceedings: The Company is in discussions with a servicer regarding alleged defaults on two construction loans ($31.7 million and $11.5 million). An agreement in principle to waive defaults has been reached. Additionally, a $30.0 million loan maturing in April 2010 was successfully amended and extended subsequent to the reporting period.
• Dividends: The Company paid dividends of $0.36 per Common Share for the six-month period, totaling $14.8 million.

Investor Verification Checklist

• Gain on Bargain Purchase: Verify the sustainability of earnings by excluding the $33.8 million non-cash gain from the CityPoint acquisition when analyzing core operating performance.
• Debt Refinancing Risk: Assess the Company's ability to refinance the $102.4 million of debt maturing in 2010, particularly the $67.1 million portion without extension options, in the current credit environment.
• CityPoint Consolidation: Review the impact of consolidating CityPoint on future depreciation, interest expense, and cash flow, as the project is currently in the redevelopment stage with no current revenue.
• Core Portfolio Vacancies: Monitor occupancy trends at Third Avenue and the Marketplace at Absecon, which were cited as primary drivers for rental income decreases in the Core Portfolio.
• Unconsolidated Affiliate Performance: Review the performance of the RCP Venture (Mervyns, Albertson's) and other unconsolidated affiliates, which contributed to equity earnings but carry inherent risks related to retailer bankruptcies or distress.