Acadia Realty Trust Earnings 2019-03-31

AKR 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 akr-10q_20190331.htm 10-Q akr-10q_20190331.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-12002

ACADIA REALTY TRUST

(Exact name of registrant in its charter)




MARYLAND (State or other jurisdiction of incorporation or organization)		23-2715194 (I.R.S. Employer Identification No.)

411 THEODORE FREMD AVENUE, SUITE 300, RYE, NY (Address of principal executive offices)		10580 (Zip Code)

(914) 288-8100

(Registrant’s telephone number, including area code)


Title of class of registered securities	Trading symbol	Name of exchange on which registered
Common shares of beneficial interest, par value $0.001 per share	AKR	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.




YES ☒		NO o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).




YES ☒		NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐	Emerging Growth Company	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No ☒

As of April 22, 2019 there were 82,768,837 common shares of beneficial interest, par value $0.001 per share (“Common Shares”), outstanding.

ACADIA REALTY TRUST AND SUBSIDIARIES

FORM 10-Q

INDEX



Item No.	Description	Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements	4
	Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018	4
	Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018	6
	Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018	7
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018	8
	Notes to Consolidated Financial Statements (Unaudited)	9

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
3.	Quantitative and Qualitative Disclosures about Market Risk	50
4.	Controls and Procedures	52

	PART II - OTHER INFORMATION
1.	Legal Proceedings	52
1A.	Risk Factors	52
2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
3.	Defaults Upon Senior Securities	52
4.	Mine Safety Disclosures	52
5.	Other Information	52
6.	Exhibits	53
	Signatures	54

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (the “Report”) may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to those set forth under the headings “Item 1A. Risk Factors” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein.

SPECIAL NOTE REGARDING CERTAIN REFERENCES

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant referenced in Part I, Item 1. Financial Statements.

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

ACADIA REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(dollars in thousands, except per share amounts)	2019			2018
ASSETS	(Unaudited)
Investments in real estate, at cost
Operating real estate, net	$	3,124,243		$	3,160,851
Real estate under development		193,315			120,297
Net investments in real estate		3,317,558			3,281,148
Notes receivable, net		109,769			109,613
Investments in and advances to unconsolidated affiliates		309,349			262,410
Other assets, net		202,206			208,570
Cash and cash equivalents		27,765			21,268
Rents receivable, net		59,701			62,191
Restricted cash		12,527			13,580
Total assets	$	4,038,875		$	3,958,780

LIABILITIES
Mortgage and other notes payable, net	$	1,109,160		$	1,017,288
Unsecured notes payable, net		481,019			533,257
Unsecured line of credit		9,000			—
Accounts payable and other liabilities		293,019			286,072
Dividends and distributions payable		24,910			24,593
Distributions in excess of income from, and investments in, unconsolidated affiliates		15,415			15,623
Total liabilities		1,932,523			1,876,833
Commitments and contingencies
EQUITY
Acadia Shareholders' Equity
Common shares, $0.001 par value, authorized 200,000,000 shares, issued and outstanding 82,708,361 and 81,557,472 shares, respectively		83			82
Additional paid-in capital		1,577,503			1,548,603
Accumulated other comprehensive (loss) income		(11,021	)		516
Distributions in excess of accumulated earnings		(100,634	)		(89,696	)
Total Acadia shareholders’ equity		1,465,931			1,459,505
Noncontrolling interests		640,421			622,442
Total equity		2,106,352			2,081,947
Total liabilities and equity	$	4,038,875		$	3,958,780

The accompanying notes are an integral part of these consolidated financial statements

ACADIA REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
(in thousands except per share amounts)	2019			2018
Revenues
Rental income	$	74,003		$	50,779
Expense reimbursements		—			11,208
Other		797			1,137
Total revenues		74,800			63,124
Operating expenses
Depreciation and amortization		30,333			28,576
General and administrative		8,323			8,470
Real estate taxes		9,603			8,959
Property operating		12,347			10,338
Other operating		—			80
Total operating expenses		60,606			56,423
Operating income		14,194			6,701
Equity in earnings of unconsolidated affiliates		2,271			1,684
Interest income		2,270			3,737
Interest expense		(17,859	)		(15,890	)
Income (loss) from continuing operations before income taxes		876			(3,768	)
Income tax benefit (provision)		46			(392	)
Income (loss) from continuing operations before gain on disposition of properties		922			(4,160	)
Gain on disposition of properties, net of tax		2,014			—
Net income (loss)		2,936			(4,160	)
Net loss attributable to noncontrolling interests		9,261			11,579
Net income attributable to Acadia	$	12,197		$	7,419

Basic and diluted earnings per share	$	0.15		$	0.09

The accompanying notes are an integral part of these consolidated financial statements

ACADIA REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31,
(in thousands)	2019			2018
Net income (loss)	$	2,936		$	(4,160	)
Other comprehensive (loss) income:
Unrealized (loss) income on valuation of swap agreements		(13,306	)		5,653
Reclassification of realized interest on swap agreements		(551	)		363
Other comprehensive (loss) income		(13,857	)		6,016
Comprehensive (loss) income		(10,921	)		1,856
Comprehensive loss attributable to noncontrolling interests		11,581			10,325
Comprehensive income attributable to Acadia	$	660		$	12,181

The accompanying notes are an integral part of these consolidated financial statements.

ACADIA REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended March 31, 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, 2019		81,557		$	82		$	1,548,603		$	516		$	(89,696	)	$	1,459,505		$	622,442		$	2,081,947
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership		175			—			2,953			—			—			2,953			(2,953	)		—
Issuance of Common Shares		971			1			27,833			—			—			27,834			—			27,834
Dividends/distributions declared ($0.28 per Common Share/OP Unit)		—			—			—			—			(23,135	)		(23,135	)		(1,781	)		(24,916	)
Employee and trustee stock compensation, net		5			—			94			—			—			94			3,360			3,454
Noncontrolling interest distributions		—			—			—			—			—			—			(3,237	)		(3,237	)
Noncontrolling interest contributions		—			—			—			—			—			—			32,191			32,191
Comprehensive (loss) income		—			—			—			(11,537	)		12,197			660			(11,581	)		(10,921	)
Reallocation of noncontrolling interests		—			—			(1,980	)		—			—			(1,980	)		1,980			—
Balance at March 31, 2019		82,708		$	83		$	1,577,503		$	(11,021	)	$	(100,634	)	$	1,465,931		$	640,421		$	2,106,352

Balance at January 1, 2018		83,708		$	84		$	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		38			—			642			—			—			642			(642	)		—
Repurchase of Common Shares		(1,304	)		(2	)		(31,959	)		—			—			(31,961	)		—			(31,961	)
Dividends/distributions declared ($0.27 per Common Share/OP Unit)		—			—			—			—			(22,262	)		(22,262	)		(1,721	)		(23,983	)
Employee and trustee stock compensation, net		9			—			95			—			—			95			3,716			3,811
Noncontrolling interest distributions		—			—			—			—			—			—			(695	)		(695	)
Comprehensive income (loss)		—			—			—			4,762			7,419			12,181			(10,325	)		1,856
Reallocation of noncontrolling interests		—			—			(1,225	)		—			—			(1,225	)		1,225			—
Balance at March 31, 2018		82,451		$	82		$	1,564,067		$	7,376		$	(46,856	)	$	1,524,669		$	639,998		$	2,164,667

The accompanying notes are an integral part of these consolidated financial statements.

ACADIA REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
(in thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	2,936		$	(4,160	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		30,333			28,576
Distributions of operating income from unconsolidated affiliates		2,054			4,724
Equity in earnings and gains of unconsolidated affiliates		(2,271	)		(1,684	)
Stock compensation expense		3,454			3,809
Amortization of financing costs		1,743			1,375
Gain on disposition of properties		(2,014	)		—
Other, net		(6,614	)		(1,889	)
Changes in assets and liabilities:
Other liabilities		(7,068	)		1,461
Prepaid expenses and other assets		(390	)		(2,240	)
Rents receivable, net		2,283			(2,359	)
Accounts payable and accrued expenses		(4,661	)		(4,674	)
Net cash provided by operating activities		19,785			22,939
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate		(32,034	)		(46,171	)
Development, construction and property improvement costs		(19,909	)		(18,136	)
Issuance of or advances on notes receivable		—			(2,951	)
Proceeds from the disposition of properties, net		9,779			—
Investments in and advances to unconsolidated affiliates		(48,983	)		(1,847	)
Return of capital from unconsolidated affiliates and other		1,635			16,210
Proceeds from notes receivable		—			26,000
(Payment) return of deposits for properties under contract		(1,952	)		1,750
Payment of deferred leasing costs		(1,549	)		(1,134	)
Net cash used in investing activities		(93,013	)		(26,279	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and other notes		(8,014	)		(45,246	)
Principal payments on unsecured debt		(124,140	)		(420,500	)
Proceeds received on mortgage and other notes		101,655			47,273
Proceeds from unsecured debt		80,940			447,800
Payments for repurchase of Common Shares		—			(31,961	)
Payments of finance lease obligations		(625	)		—
Proceeds from the sale of Common Stock		27,834			—
Capital contributions from noncontrolling interests		32,191			—
Distributions to noncontrolling interests		(4,999	)		(2,411	)
Dividends paid to Common Shareholders		(22,836	)		(22,601	)
Deferred financing and other costs		(3,334	)		(2,822	)
Net cash provided by (used in) financing activities		78,672			(30,468	)

Increase (decrease) in cash and restricted cash		5,444			(33,808	)
Cash of $21,268 and $74,823 and restricted cash of $13,580 and $10,846, respectively, beginning of period		34,848			85,669
Cash of $27,765 and $39,344 and restricted cash of $12,527 and $12,517, respectively, end of period	$	40,292		$	51,861

Supplemental disclosure of cash flow information
Cash paid during the period for interest, net of capitalized interest of $2,575 and $1,492 respectively	$	16,898		$	11,910
Cash paid for income taxes, net of refunds	$	113		$	673

Supplemental disclosure of non-cash investing activities
Assumption of accounts payable and accrued expenses through acquisition of real estate	$	159		$	425
Right-of-use assets, finance leases obtained in exchange for finance lease liabilities	$	5,664		$	—
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	$	11,871		$	—
Capital lease obligation exchanged for finance lease liability	$	71,111		$	—
Other liabilities exchanged for operating lease liabilities	$	946		$	—
Acquisition of undivided interest in a property through conversion of notes receivable	$	—		$	22,201

The accompanying notes are an integral part of these consolidated financial statements.

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

Acadia Realty Trust and subsidiaries (collectively, 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 March 31, 2019 and December 31, 2018, the Company controlled approximately 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 of the Company (“Common Shares”). This structure is referred to as an umbrella partnership REIT or “UPREIT.”

As of March 31, 2019, the Company has ownership interests in 121 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 53 properties within its opportunity funds (the “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”). The 174 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 I and 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 March 31, 2019		Unfunded Commitment		Equity Interest Held By Operating Partnership^(a)			Preferred Return			Total Distributions as of March 31, 2019 ^(b)
Fund II and Mervyns II ^(c)	6/2004		28.33	%	$	347.1	$	—		28.33	%		8	%	$	146.6
Fund III	5/2007		24.54	%		426.3		23.7		24.54	%		6	%		554.8
Fund IV	5/2012		23.12	%		425.4		104.6		23.12	%		6	%		147.4
Fund V	8/2016		20.10	%		118.3		401.7		20.10	%		6	%		—

(a)	Amount represents the current economic ownership at March 31, 2019, 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. This amount remains subject to re-contribution to Fund II until April 2021.

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation

Segments

At March 31, 2019, 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 basis and does not differentiate properties on a geographical basis for purposes of allocating resources or capital.

Principles of Consolidation

The interim 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC Topic 810”). 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 income.

The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods. Such adjustments consisted of normal recurring items.

These interim consolidated financial statements should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K, as filed with the SEC on February 19, 2019.

Use of Estimates

GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the interim 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.

Recently Adopted Accounting Pronouncements

Lease Accounting

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, will be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the former model, with the distinction between operating, sales-type and direct-financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard, ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). To ease the transition, the new lease accounting guidance permits companies to utilize certain practical expedients in their implementation of the new standard:

•

A package of three practical expedients that must be elected together for all leases and includes: (i) not reassessing expired or existing contracts as to whether they are or contain leases; (ii) not reassessing lease classification of existing leases and (iii) not reassessing the amount of capitalized initial direct costs for existing leases;

•

A practical expedient to use hindsight in determining the lease term or assessing purchase options for existing leases and in assessing impairment of right of use assets;

•

Lessees may make an accounting policy election by class of underlying asset not to separate lease components from non-lease components; and

•

Lessees may make an accounting policy election not to apply the recognition and measurement requirements to short-term leases.

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

ASU 2016-02 was modified by the following subsequently issued ASU’s (together with ASU 2016-02, “Topic 842”), many of which provided additional transition practical expedients:

•

ASU 2018-01, Land Easements Practical Expedient for Transition to Topic 842 added a transition practical expedient to not reassess existing or expired land easement agreements not previously accounted for as leases

•

ASU No. 2018-10, Codification Improvements to Topic 842, Leases. These amendments provide minor clarifications and corrections to ASU 2016-02.

•

ASU 2018-11, Leases (Topic 842): Targeted Improvements.

The amendments in this Update provide entities with an additional optional transition method to adopt ASU 2016-02. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting under this additional transition method for the comparative periods presented in the financial statements in which it adopts the new leases standard would continue to be in accordance with former GAAP (Topic 840, Leases).

The amendments in this Update also provide lessors with a practical expedient, by class of underlying asset, to make a policy election to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606). Conditions are required to elect the practical expedient, and if met, the single component will be accounted for under either under Topic 842 or Topic 606 depending on which component(s) are predominant. The lessor practical expedient to not separate non-lease components from the associated component must be elected for all existing and new leases.

•

ASU 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors. This ASU modifies ASU No. 2016-02 to permit lessors, as an accounting policy election, not to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Consequently, a lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures (includes sales, use, value added, and some excise taxes and excludes real estate taxes).

•

ASU 2019-01, Leases (Topic 842), Codification Improvements. There are three codification updates to Topic 842 covered by this ASU: Issue 1 provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers; Issue 2 relates to cash flow presentation for lessors of sales-type and direct financing leases; and Issue 3 clarifies that certain transition disclosures will only be required in annual disclosures.

Under the new leasing guidance, contract consideration shall be allocated to its lease components (such as the lease of retail properties) and non-lease components (such as maintenance). For lessors, any non-lease components will be accounted for under Topic 606 unless the entity elects the lessor practical expedient to not separate the non-lease components from the associated lease component as described above. The new guidance also includes a definition of initial direct costs that is narrower than the prior definition in former GAAP (Topic 840, Leases). Topic 842 was effective for the Company beginning January 1, 2019.

The Company adopted Topic 842 effective January 1, 2019 utilizing the new transition method described in ASU 2018-11 and has availed itself of all the available practical expedients described above except it did not use hindsight in determining the lease term or assessing purchase options for existing leases and in assessing impairment of right of use assets.

As lessor, the Company has more than 1,000 leases primarily with retail tenants and to a lesser extent with office and residential tenants. A significant majority of its leases are on a triple-net basis. The impact of adoption of ASU 2016-02 for the Company as lessor was as follows:

•

The Company has elected the lessor practical expedient to not separate common area maintenance from the associated lease for all existing and new leases and to account for the combined component as a single lease component. Common area maintenance is considered a non-lease component within the scope of Topic 606 and reimbursements of taxes and insurance are considered contractual payments that do not transfer a good or service to the tenant; however, such revenues related to leases, which were formerly reported as reimbursed expenses, will be reported within lease revenues in the presentation of the statement of income subsequent to the implementation of ASC 842. Prior year classifications under ASC 840 will not be adjusted.

•

Due to its election of available practical expedients, the Company expects that post-adoption substantially all existing leases, and new leases compared to similar existing leases, will have no change in the timing of revenue recognition.

•

The Company’s internal leasing costs will be expensed as incurred, as opposed to being capitalized and deferred. Commissions subsequent to successful lease execution will continue to be capitalized. After adoption, the Company will no longer capitalize internal leasing costs that were previously capitalized (the Company capitalized $1.8 million of internal leasing costs during the year ended December 31, 2018).

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

•

The Company has existing easement arrangements that have not been previously identified as leases. The Company expects that its existing and similar future easement arrangements will not be classified as rental revenue but as other revenues as these arrangements do not transfer control to the counterparty.

•

The Company makes a policy election to continue to account for only those taxes described under ASU 2018-20 that it pays on behalf of the tenant as reimbursable costs and will not account for those taxes paid directly by the lessee which are considered lessee costs.

As lessee, the Company is party to 13 ground, office and equipment leases with future payment obligations aggregating $203.1 million at December 31, 2018. The impact of adoption of ASU 2016-02 for the Company as lessee was as follows (Note 11):

•

As lessee, the Company has applied the following practical expedients in the implementation ASU 2016-02: (i) to not separate non-lease components from the associated lease component as described above and (ii) to not apply the right-of-use recognition requirements to short-term leases. As such, there were no changes in the timing of recognition of expenses related to its operating leases.

•

The Company recognized right-of-use assets and lease liabilities of $11.9 million and $12.8 million, respectively, related to its operating leases.

•

The Company reclassified its existing capital lease asset of $77.0 million and capital lease liability of $71.1 million to a right-of-use asset and a lease liability, respectively, pertaining to finance leases.

•

Subsequent to the adoption of and in accordance with Topic 842, the Company reassessed the circumstances surrounding three of its operating ground leases and determined that it had made significant leasehold improvements and was now reasonably certain to exercise their purchase options. Accordingly, the Company reclassified the existing right-of-use assets and lease liabilities from operating leases to finance leases and adjusted the leases’ right-of-use assets and corresponding lease liabilities to $5.7 million and $5.7 million, respectively, to incorporate the present value of the purchase options, which totaled $4.7 million at January 1, 2019.

•

With the adoption of ASC Topic 842, the Company will no longer provide a reserve for uncollectible receivables; they will be written-off. Accordingly, tenant receivables will not be presented net of an allowance for doubtful accounts on the balance sheet. The write-off of the tenant receivables will be presented as a reduction of revenue rather than as an operating expense on the income statement. In addition, rental income related to tenants with uncollectible receivables will be recorded on a cash basis and straight-line rent will be suspended.

The Company did not record any cumulative effect of change in accounting principle upon the adoption of ASC Topic 842 as lessor or lessee. Consistent with the transition guidance under ASU 2018-11, all prior period disclosures remain in accordance with ASC Topic 840.

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$28.19	83	$2,330

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-05-31	Other Events, Exhibits
8-K	2019-05-09	Shareholder Vote
8-K	2019-04-24	Earnings, Exhibits
8-K	2018-12-31	Earnings, Exhibits
8-K	2018-12-28	Earnings, Officers, Regulation FD, Exhibits
8-K	2018-10-24	Earnings, Exhibits
8-K	2018-08-28	Other Events, Exhibits
8-K	2018-07-24	Earnings, Exhibits
8-K	2018-05-10	Shareholder Vote
8-K	2018-02-20	Enter Agreement, Earnings, Off-BS Arrangement, Other Events, Exhibits

MDLZ	Mondelez	73,970
PMT	Pennymac Mortgage Investment Trust	1,420
WAIR	Wesco Aircraft Holdings	1,020
SPNS	Sapiens	761
APEI	American Public Education	493
EDUC	Educational Development	68
SAUC	Diversified Restaurant Holdings	32
CINAV	Cole Real Estate Income Strategy	0
LCLP	Life Clips	0
CHND	China Media	0

EX-10.1	akr-ex101_239.htm
EX-31.1	akr-ex311_7.htm
EX-31.2	akr-ex312_10.htm
EX-32.1	akr-ex321_6.htm
EX-32.2	akr-ex322_9.htm

	March 31, 2019			December 31, 2018
Land	$	705,402		$	710,469
Buildings and improvements		2,574,459			2,594,828
Tenant improvements		157,502			151,154
Construction in progress		30,413			44,092
Properties under capital lease		—			76,965
Right-of-use assets - finance leases		82,629			—
Right-of-use assets - operating leases		11,871			—
Total		3,562,276			3,577,508
Less: Accumulated depreciation		(438,033	)		(416,657	)
Operating real estate, net		3,124,243			3,160,851
Real estate under development, at cost		193,315			120,297
Net investments in real estate	$	3,317,558		$	3,281,148

Property and Location	Percent Acquired	Date of Acquisition	Purchase Price
2019 Acquisitions
Core
Soho Portfolio - 51 and 53 Greene Street ^(a)	100%	Mar 15, 2019 Mar 27, 2019	$	32,194
Total 2019 Acquisitions			$	32,194

2018 Acquisitions and Conversions
Core
Bedford Green Land Parcel - Bedford Hills, NY	100%	Mar 23, 2018	$	1,337
Subtotal Core