<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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 23-2715194
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 SOUNDVIEW MARKETPLACE, PORT WASHINGTON, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(516) 767-8830
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 X No
As of November 14, 1998, there were 25,419,215
common shares of beneficial interest, par value
$.001 per share, outstanding.
<PAGE> 2
ACADIA REALTY TRUST AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I: Financial Information Page
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations for
the three and nine months ended
September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998
and 1997 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Part II:Other Information
Item 2. Changes in Securities and Use of Proceeds 28
Item 4. Submission of Matters to a Vote of Security 29
Holders
Item 6. Exhibits 30
Signatures 31
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
September 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Real estate
Land $ 76,116 $ 30,855
Buildings and improvements 446,293 274,165
Properties under development 20,645 6,668
-------- --------
543,054 311,688
Less: accumulated depreciation 83,057 83,326
-------- --------
Net real estate 459,997 228,362
Property held for sale 9,363 --
Cash and cash equivalents 19,213 1,287
Cash in escrow 10,521 7,906
Investments in unconsolidated
partnerships 7,353 --
Rents receivable, net 5,238 4,802
Prepaid expenses 3,984 1,241
Due from related parties 58 177
Deferred charges, net 10,594 9,710
Other assets 981 1,015
-------- --------
$527,302 $254,500
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $278,420 $183,943
Accounts payable and accrued expenses 7,403 7,553
Note payable to shareholder -- 3,050
Other liabilities 3,587 1,910
-------- --------
Total Liabilities 289,410 196,456
-------- --------
Minority interest in Operating
Partnership 79,770 9,244
Minority interests in majority
owned partnerships 2,350 --
-------- -------
Total Minority Interests 82,120 9,244
-------- -------
<PAGE> 4
Shareholders' Equity:
Common shares, $.001 par value,
authorized 100,000,000 and
50,000,000 shares, respectively,
issued and outstanding 25,419,215
and 8,554,177 shares, respectively 25 9
Additional paid-in capital 170,923 51,073
Deficit (15,176) (2,282)
-------- --------
Total Shareholders' Equity 155,772 48,800
-------- --------
$527,302 $254,500
======== ========
See accompanying notes
</TABLE> 1
<PAGE> 5
<TABLE>
<CAPTION>
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands, except per share amounts)
Three months ended Nine months ended
9/30/98 9/30/97 9/30/98 9/30/97
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Minimum rents $12,959 $ 8,375 $29,932 $25,125
Percentage rents 386 705 1,474 2,230
Expense reimbursements 2,343 1,611 5,624 5,015
Other 462 183 820 756
------- ------- ------- -------
Total revenues 16,150 10,874 37,850 33,126
------- ------- ------- -------
Operating Expenses
Property operating 4,319 2,052 8,874 6,744
Real estate taxes 2,055 1,393 4,886 4,246
Depreciation and
amortization 4,188 3,547 11,173 10,236
General and
administrative 1,156 538 2,201 1,646
Non-recurring charges 919 -- 1,473 --
------- ------- ------- -------
Total operating expenses 12,637 7,530 28,607 22,872
------- ------- ------- -------
Operating income 3,513 3,344 9,243 10,254
Equity in earnings of un-
consolidated partnerships 94 -- 94 --
Loss on sale of property -- -- -- (12)
Adjustment of carrying
value of property held
for sale (11,560) -- (11,560) --
Interest expense (4,967) (3,888) (12,886) (11,533)
------- ------- ------- -------
Loss before extraordinary
item and minority
interest (12,920) (544) (15,109) (1,291)
Extraordinary item -
loss on early
extinguishment of debt (439) -- (707) --
Minority interest 2,559 72 2,922 161
------- ------- ------- -------
Net loss $(10,800) $ (472) $(12,894) $ (1,130)
======= ======= ======= =======
<PAGE> 6
Net loss per Common Share:
Loss before
extraordinary item $ (.58) $ (.06) $ (1.05) $ (.13)
Extraordinary item (.02) -- (.05) --
------- ------- ------- -------
Net loss per
Common Share $ (.60) $ (.06) $ (1.10) $ (.13)
======= ======= ======= =======
See accompanying notes
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands)
Sept 30, Sept 30,
1998 1997
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,894) $ (1,130)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 11,173 10,236
Extraordinary item - loss on early
extinguishment of debt 707 --
Minority interest (2,922) (161)
Equity in income of unconsolidated
partnerships (94) --
Provision for bad debts 994 509
Loss on sale of property -- 12
Adjustment to carrying value of property
held for sale 11,560 --
Other 29 52
Changes in assets and liabilities:
Rents receivable (1,430) (517)
Prepaid expenses (2,743) (188)
Due from related parties 119 32
Other assets (115) (447)
Accounts payable and accrued expenses 1,263 733
Other liabilities 1,677 (118)
------- -------
Net cash provided by operating activities 7,324 9,013
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and
improvements (16,602) (8,876)
Investments in unconsolidated partnerships (861) --
Net proceeds from sale of property -- 1,288
Payment of deferred leasing costs (1,902) (751)
------- -------
Net cash used in investing activities (19,365) (8,339)
------- -------
3
<PAGE> 8
</TABLE>
<TABLE>
<CAPTION>
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands)
Sept 30, Sept 30,
1998 1997
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
Common Shares 96,099 --
Principal payments on mortgages (79,634) (14,183)
Proceeds received on mortgage notes 19,877 25,078
Payment of note payable to shareholder (3,050) --
Net funding of escrows (2,615) (4,035)
Payment of deferred financing and
other costs (679) (895)
Dividends paid -- (7,866)
Distributions to minority interests (31) (1,536)
------- -------
Net cash provided by (used in)
financing activities 29,967 (3,437)
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 17,926 (2,763)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,287 3,912
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $19,213 $ 1,149
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for
interest, net of amounts
capitalized of $498 and $425,
respectively $12,238 $11,610
======= =======
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
The following activity was recorded in connection with the RDC
Transaction (Note 1).
<PAGE> 9
Real estate and investment in
partnerships acquired $(253,801)
Mortgage notes payable assumed 154,234
Operating partnership units issued 83,250
Common Shares issued 13,967
Minority interests in
acquired properties 2,350
--------
Net Cash $ --
========
</TABLE>
See accompanying notes
4
<PAGE> 10
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. THE COMPANY
Acadia Realty Trust (the "Company"), formerly known as Mark
Centers Trust, is a fully integrated and self-managed real estate
investment trust ("REIT") focused primarily on the ownership,
acquisition, redevelopment and management of neighborhood and
community shopping centers, and multi-family properties.
All of the Company's assets are held by, and all of its
operations are conducted through, Acadia Realty Limited
Partnership (the "Operating Partnership"), formerly known as Mark
Centers Limited Partnership, and its majority owned partnerships.
As of September 30, 1998, the Company controlled 69% of the
Operating Partnership as the sole general partner. The Company
will at all times be the sole general partner of, and owner of a
51% or greater interest in, the Operating Partnership.
The Company currently operates fifty-eight properties, which it
owns or has an ownership interest in, consisting of forty-seven
neighborhood and community shopping centers, three enclosed
malls, two mixed use (retail/office) properties, five multi-
family properties and one redevelopment property located in the
Eastern and Midwestern regions of the United States.
2. ACQUISITIONS AND RELATED TRANSACTIONS
On August 12, 1998 Mark Centers Trust completed the transactions
contemplated by the Contribution and Share Purchase Agreement
dated April 15, 1998 (the "RDC Transaction"). In connection with
the RDC Transaction, the Operating Partnership acquired (i) fee
title or all, or substantially all, of the ownership interests in
twelve shopping centers, five multi-family properties and one
redevelopment property, (ii) a 49% interest in one shopping
center, (iii) certain third party management contracts, and (iv)
certain promissory notes from real estate investment partnerships
and related entities, which are not under common control, in
which RDC serves as general partner or in another similar
management capacity, for approximately 11.1 million operating
partnership units ("OP Units") and approximately 2.0 million
common shares of beneficial interest ("Common Shares") valued at
$97,217. In addition, the Company assumed mortgage debt
aggregating $154,234 and incurred other capitalized transaction
costs of $5,757 resulting in an aggregate purchase price of
$257,208. Pursuant to the terms of the RDC Transaction, the
recipients of the OP Units and Common Shares are restricted,
subject to certain limited exceptions, from selling or otherwise
transferring such OP Units or Common Shares prior to the one year
anniversary of the closing of the RDC Transaction.
5
<PAGE> 11
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
2. ACQUISITIONS AND RELATED TRANSACTIONS, continued
As part of the RDC Transaction, Mark Centers Trust issued
approximately 13.3 million Common Shares to three real estate
investment limited partnerships (collectively the "RDC Funds"),
in which affiliates of RD Capital, Inc. ("RDC") serves as general
partner, in exchange for $100,000. The proceeds from the
issuance of Common Shares were used as follows:
Repayment of mortgage notes payable $ 70,509
Repayment of note payable to shareholder 3,030
Transaction costs allocable to stock issuance 3,901
Transaction costs allocable to RDC properties,
RDC management contracts and contributed notes 4,474
Payment of liabilities assumed in connection
with acquisition of RDC properties, RDC
management contracts and contributed notes 1,283
Prepayment and assumption fees on mortgage
notes repaid 371
Contractual payments to Company management
personnel pursuant to severance and change in
control obligations and other RDC Transaction
expenses 1,473
Additions to working capital 14,959
--------
$100,000
========
As a result of the RDC Transaction, the RDC Funds owned 63% of
Common Shares in the Company. Each of the RDC Funds has
appointed each of its partners as such RDC Funds' proxy with
respect to the Common Shares to which such partner would be
entitled upon a dissolution of such RDC Fund and a distribution
of such Common Shares among the partners. Other real estate
investment partnerships and related entities in which RDC or its
affiliates serve as general partner or in another similar
management capacity, owned 93% of the minority interest in the
Operating Partnership as limited partners. Collectively, after
giving effect to the conversion of their OP Units, which are
generally exchangeable for Common Shares on a one-for-one basis,
these entities and the RDC Funds beneficially owned 72% of the
Common Shares as of the closing of the RDC Transaction.
The Company has accounted for the RDC Transaction as (i) a
purchase of properties and other related assets in exchange for
OP Units and Common Shares and the assumption of certain mortgage
debt and other liabilities using the purchase method of
accounting and (ii) an issuance of Common Shares for cash.
Accordingly, the accompanying consolidated financial statements
include the operations of the properties acquired in the RDC
Transaction from August 12, 1998 through September 30, 1998.
6
<PAGE> 12
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
2. ACQUISITIONS AND RELATED TRANSACTIONS, continued
The Operating Partnership is also obligated to acquire from an
RDC affiliate its 25% ownership interest in a shopping center
currently under construction. Upon completion of construction
and attainment of certain occupancy levels, the Operating
Partnership will issue OP Units valued at $5,500. In addition,
the Operating Partnership is obligated to issue additional OP
Units valued at $2,750 upon the completion of certain
improvements and the commencement of rental payments from a
designated tenant at one of the properties acquired in the RDC
Transaction.
Concurrent with the closing of the RDC Transaction, the Company
appointed Ross Dworman and Kenneth F. Bernstein, the Chief
Executive Officer and Chief Operating Officer, respectively, of
RDC, as the Chairman and Chief Executive Officer, and President,
respectively, of the Company. Messrs. Dworman and Bernstein,
together with two designees of RDC, were appointed to the Board
of Trustees.
Following the completion of the RDC Transaction, the Company
changed its name from Mark Centers Trust to Acadia Realty Trust
and the name of the Operating Partnership was changed from Mark
Centers Limited Partnership to Acadia Realty Limited Partnership.
3. BASIS OF PRESENTATION
The consolidated financial statements include the consolidated
accounts of the Company and its majority owned partnerships,
including the Operating Partnership, and have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Wholly owned properties and those which are
partially owned but controlled by the Operating Partnership, are
accounted for using the consolidated method of accounting. Non-
controlling investments in partnerships are accounted for under
the equity method of accounting as the Company exercises
significant influence. The information furnished in the
accompanying consolidated financial statements reflects all
adjustments which are, in the opinion of management, necessary
for a fair presentation of the aforementioned consolidated
financial statements for the interim periods. The preparation of
the consolidated financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes.
7
<PAGE> 13
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
3. BASIS OF PRESENTATION, continued
Actual results could differ from these estimates. Operating results
for the nine month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 1998. For further information refer to
the consolidated financial statements and accompanying footnotes
included in the Company's Annual Report on Forms 10-K and 10-K/A
for the year ended December 31, 1997.
4. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The following table summarizes the change in the shareholders'
equity and minority interest since December 31, 1997:
<TABLE>
<CAPTION>
Shareholders' Minority
Equity Interests
(unaudited)
<S> <C> <C>
Balance at December 31, 1997 $ 48,800 $ 9,244
Vesting of restricted shares 29 --
Conversion of 800,000 OP Units
by shareholder 4,368 (4,368)
Distributions to minority interests -- (31)
Issuance of 13,333,333 Common
Shares in connection with the
RDC Transaction, net of issuance costs 96,099 --
Issuance of 11,100,000 OP Units and
1,989,048 Common Shares in
connection with the RDC Transaction 13,967 83,250
Conversion of 738,857 OP Units
by shareholders in connection with
the RDC Transaction 5,403 (5,403)
Minority interests in certain
majority owned partnerships acquired
in connection with the RDC Transaction -- 2,350
Net loss for the period January 1
through September 30, 1998 (12,894) (2,922)
------- -------
Balance at September 30, 1998 $155,772 $ 82,120
======= =======
Minority interests represent the limited partners' interest of
11,184,143 and 1,623,000 units in the Operating Partnership at
September 30, 1998 and 1997, respectively. In addition, at
September 30, 1998, minority interests also include an aggregate
amount of $2,350 representing interests held by third parties in
four of the properties acquired in the RDC Transaction in which
the Company has a majority ownership position.
</TABLE>
8
<PAGE> 14
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
5. INVESTMENT IN PARTNERSHIPS
In connection with the RDC Transaction, the Company acquired a
49% interest in the Crossroads Joint Venture and Crossroads II
Joint Venture (collectively "Crossroads"). The Company accounts
for its investment in Crossroads using the equity method.
Summary financial information of the Crossroads and the Company's
investment in and share of income from Crossroads follows:
September 30,
1998
(unaudited)
Balance Sheet
Assets:
Rental property, net $ 8,926
Other assets 4,191
-------
Total assets $13,117
=======
Liabilities and partners' equity
Mortgage note payable $35,625
Other liabilities 525
Partners' equity (23,033)
-------
Total liabilities and partners' equity $13,117
=======
Company's investment in partnerships $ 7,353
=======
Statement of Operations
Total revenue $ 921
Operating and other expenses 197
Interest expense 363
Depreciation and amortization 70
-------
Net income $ 291
=======
Company's share of net income $ 143
Amortization of excess investment
(See below) 49
-------
Income from partnerships $ 94
=======
The unamortized excess of the Company's investment over its share
of the net equity in Crossroads at the date of acquisition was
$19,580. The portion of this excess attributable to buildings
and improvements is being amortized over the life of the related
property.
9
<PAGE> 15
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
6. MORTGAGE LOANS
In connection with the properties acquired in the RDC
Transaction, the Company assumed $154,234 of mortgage debt, of
which $48,615 was retired using a portion of the proceeds from
the issuance of Common Shares. Mortgage debt totaling $21,894,
which was outstanding prior to the RDC Transaction, was also
retired using a portion of the proceeds from the issuance of
Common Shares.
The following table summarizes the Company's mortgage
indebtedness as of September 30, 1998:
10
<PAGE> 16
<TABLE>
<CAPTION>
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unaudited)
7. Mortgage Loans, continued
Monthly
September 30, Interest Maturity Properties Payment
1998 Rate Encumbered Terms
<S> <C> <C> <C> <C> <C>
Mortgage notes payable - variable rate
- --------------------------------------
KBC Bank $ 14,820 6.91% (LIBOR + 1.25%) 12/31/00 (1) (14)
General Electric Capital Corp. 7,013 8.41% (Commercial Paper 01/01/02 (2) (15)
rate + 2.75%)
Fleet Bank, N.A. 8,295 7.43% (LIBOR + 1.78%) 05/31/02 (3) (14)
-------
Total variable-rate debt 30,128
-------
Mortgage notes payable-fixed rate
- ---------------------------------
Sun America Life Insurance Company 8,769 7.75% 06/24/99 (4) (15)
The Manufacturers Life
Insurance Company (USA) 4,389 7.73% 12/10/99 (5) (15)
John Hancock Mutual Life Insurance Co. 54,569 9.11% 04/01/00 (6) (15)
Metropolitan Life Insurance Company 41,000 7.75% 06/01/00 (7) (14)
Sun America Life Insurance Company 44,018 7.75% 01/01/01 (8) (15)
Anchor National Life Insurance Company 3,970 7.93% 01/01/04 (9) (15)
Lehman Brothers Holdings, Inc. 18,179 8.32% 03/01/04 (10) (15)
Northern Life Insurance Company 3,465 7.70% 12/01/08 (11) (15)
Bankers Security Life 2,390 7.70% 12/01/08 (11) (15)
Morgan Stanley Mortgage Capital 44,880 8.84% 11/01/21 (12) (15)
Nomura Asset Capital Corporation 22,663 9.02% 03/11/22 (13) (15)
-------
Total fixed-rate debt 248,292
-------
Total All Debt $278,420
=======
11
<PAGE> 17
</TABLE>
<TABLE>
<CAPTION>
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unaudited)
7. Mortgage Loans, continued
Notes:
<S> <C> <C>
(1) Marley Run Apartments (6) New Loudon Center (11) Manahawkin Shopping Center
Ledgewood Mall
(2) Soundview Marketplace Plaza 422 (12) Midway Plaza
Berlin Shopping Center Northside Mall
(3) Smithtown Commons Route 6 Mall New Smyrna Beach
Tioga West Cloud Springs Plaza
(4) Village Apartments Bradford Towne Center Troy Plaza
Martintown Plaza
(5) Hobson West Plaza (7) Valmont Plaza Kings Fairgrounds
Luzerne Street Plaza Shillington Plaza
Green Ridge Plaza Dunmore Plaza
Crescent Plaza Kingston Plaza
East End Centre Twenty Fifth Street Shopping Center
Circle Plaza
(8) Bloomfield Town Square Mountainville Plaza
Walnut Hill Shopping Center Plaza 15
Atrium Mall Birney Mall
GHT Apartments Monroe Plaza
Colony Apartments Ames Plaza
(9) Pittston Plaza (13) Northwood Centre
(10) Glen Oaks (14) Interest only monthly
(15) Monthly principal and interest
12
</TABLE>
<PAGE> 18
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
7. RELATED PARTY TRANSACTIONS
On July 2, 1998, Marvin Slomowitz, the former principal
shareholder, converted 800,000 OP Units to 800,000 Common Shares.
The Company entered into the following transactions with Mr.
Slomowitz in connection with the RDC Transaction: (i) repaid a
$3,030 note related to the Company's 1996 purchase of the Union
Plaza, (ii) paid $600 in severance pay, (iii) paid $100 on the
closing of the RDC Transaction and agreed to pay $100 on each of
the following two anniversary dates of the closing of the RDC
Transaction for his agreement not to compete with the Company and
for certain consulting services, (iv) granted ten year options to
purchase 300,000 Common Shares at an exercise price of $9.00 per
Common Share, (v) cancelled formerly issued options to purchase
200,000 Common Shares at $12.00 per Common Share and (vi) agreed
to pay a brokerage commission of 2% of the sales price of nine
designated properties currently comprising a portion of the
Company's portfolio, provided such commissions will not exceed
$600 in the aggregate.
In connection with the RDC Transaction, the Company acquired
certain property management contracts for three properties in
which certain current shareholders of the Company or their
affiliates have ownership interests. Management fees earned by
the Company under these contracts are at rates of 3.25% and 3.5%
of collections, or a fixed annual fee of $110 and aggregated $30
during the period ended September 30, 1998.
8. PER SHARE DATA
Basic earnings per share was determined by dividing the net loss
applicable to common shareholders by the weighted average number
of Common Shares outstanding during each period consistent with
the guidelines of the Financial Accounting Standards Board
Statement No. 128. The weighted average number of Common Shares
for the nine months ended September 30, 1998 and 1997 totaled
11,764,133 and 8,551,173, respectively. Diluted earnings per
share reflects the potential dilution that could occur if
securities or other contracts to issue Common Shares were
exercised or converted into Common Shares or resulted in the
issuance of Common Shares that then shared in the earnings of the
Company. For the nine months ended September 30, 1998 and 1997,
no additional Common Shares were reflected as the impact would be
anti-dilutive due to the net loss in each period.
9. NON-RECURRING CHARGES
In connection with the RDC Transaction, the Company has taken
one-time charges of $1,473 primarily related to payments made to
certain officers and key employees pursuant to change in control
provisions of employment contracts and severance paid to the
former principal shareholder (Note 7).
13
<PAGE> 19
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
10. ADJUSTMENT TO CARRYING VALUE OF PROPERTY
Following the RDC Transaction, management adopted a plan to
dispose of certain under-performing properties. The Company has
listed three of these properties with independent brokers and is
actively marketing such properties for sale. The Company
anticipates that the proceeds to be realized from these three
properties will be insufficient to recover the associated
carrying values. Accordingly, the Company has taken a non-cash
charge of $11,560 to write-down these properties to fair market
value based on the estimated sales proceeds (net of selling
costs).
11. EXTRAORDINARY ITEM - WRITE-OFF OF DEFERRED FINANCING COSTS
The consolidated statement of operations for the nine months
ended September 30, 1998 includes the write-off of $707 in net
deferred financing fees as a result of the repayment of the
related mortgage debts.
12. PRO FORMA INFORMATION
The following unaudited pro forma condensed consolidated
information for the nine months ended September 30, 1998 and 1997
is presented as if the RDC Transaction had occurred on January 1,
1997.
September 30, September 30,
1998 1997
Revenue $61,970 $61,422
======= =======
(Loss) income before
extraordinary item $(5,471) $ 3,848
======= =======
Net (loss) income $(5,739) $ 3,409
======= =======
Net (loss) income per share-
basic and diluted $ (0.23) $ 0.14
======= =======
Weighted average number of
Common Shares outstanding 24,677,928 24,673,554
========== ==========
Weighted average number of
Common Shares outstanding-assuming
dilution N/A 24,681,610
========== ==========
14
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion is based on the consolidated financial
statements of Acadia Realty Trust (the "Company") as of September
30, 1998 and 1997 and for the three and nine months then ended.
This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
Certain statements made in this report may constitute "forward-
looking statements" within the meaning of federal securities
laws. Such statements are inherently subject to risk and
uncertainties which may cause the actual results to differ
materially from the future results implied by such forward-
looking statements. Factors which might cause such differences
include general economic conditions, adverse changes in the real
estate markets in general and in the geographic regions in which
the Company's properties are located, changes in interest rates,
potential bankruptcy of tenants and environmental requirements.
RESULTS OF OPERATIONS
The following comparisons for the three and nine month periods
ended September 30, 1998 as compared to the same periods for 1997
reference the effect of the properties acquired on August 12,
1998 as a result of the RDC Transaction (the "RDC Properties").
Comparison of Three Months Ended September 30, 1998 ("1998") to
Three Months Ended September 30, 1997 ("1997")
Total revenues increased $5.3 million, or 49%, to $16.2 million
for 1998 compared to $10.9 million for 1997.
Minimum rents increased $4.6 million, or 55%, to $13.0 million
for 1998 compared to $8.4 million for 1997. $4.4 million of the
increase, or 53%, was attributable to the RDC Properties. The
remaining increase was a result primarily of increases at the
Mark Plaza and Ledgewood Mall.
Percentage rents decreased $319, or 45%, to $386 for 1998
compared to $705 for 1997. This decrease was primarily
attributable to the Company's adoption of the Emerging Issue Task
Force ("EITF") Issue No. 98-9 "Accounting for Contingent Rent in
Interim Financial Periods" in 1998.
Expense reimbursements increased $732, or 45%, from $1.6 million
for 1997 to $2.3 million for 1998, which was primarily
attributable to the RDC Properties which had expense
reimbursements of $743.
15
<PAGE> 21
RESULTS OF OPERATIONS, continued
Other income increased $279 of which $111 was attributable to the
RDC Properties. The remaining variance was a result of an
increase in interest earning assets in 1998.
Total operating expenses increased $5.1 million, or 68%, to $12.6
million for 1998, from $7.5 million for 1997.
Property operating expenses increased $2.3 million, or 110%, to
$4.3 million for 1998 compared to $2.1 million for 1997. Of this
increase, $1.3 million, or 57%, was attributable to the RDC
Properties. The remaining increase was primarily due to the
recording of reserves against unbilled rents receivable
("straight-line rent") for certain leases with Penn Traffic,
which is currently experiencing significant financial and
operating difficulties, and an increase in estimated claims
related to the Company's property related liability insurance
policies.
Real estate taxes increased $662, or 48%, from $1.4 million for
1997 to $2.1 million for 1998 primarily attributable to the RDC
Properties which had real estate taxes of $606.
Depreciation and amortization increased $641, or 18%, for 1998
primarily attributable to the RDC Properties, which had
depreciation of $603.
General and administrative expense increased $618, or 115%, from
$538 for 1997 to $1.2 million for 1998, which was primarily
attributable to the RDC Properties, which had general and
administrative expense of $555.
Non-recurring charges of $919 are costs incurred related to the
RDC Transaction and primarily represent payments made to certain
officers and key employees pursuant to change in control
provisions of employment contracts and severance paid to the
former principal shareholder.
Adjustment of carrying value of property held for sale represents
a 1998 non-cash charge of $11,560 to write-down three properties
to fair market value based on the estimated sales proceeds.
Interest expense of $5.0 million for 1998 increased $1.1 million,
or 28%, from $3.9 million primarily attributable to the RDC
Properties.
The $439 extraordinary loss is a result of the write-off of
deferred financing fees as a result of the repayment of the
related mortgage debts.
16
<PAGE> 22
RESULTS OF OPERATIONS, continued
Comparison of Nine Months Ended September 30, 1998 ("1998") to
Nine Months Ended September 30, 1997 ("1997")
Total revenues increased $4.8 million, or 14%, to $37.9 million
for 1998 compared to $33.1 million for 1997.
Minimum rents increased $4.8 million, or 19%, to $29.9 million
for 1998 compared to $25.1 million for 1997. $4.4 million of the
increase, or 18% was attributable to the RDC Properties. The
remaining increase was primarily a result of increases at the
Mark Plaza and Ledgewood Mall.
Percentage rents decreased $756, or 34%, to $1.5 million for 1998
compared to $2.2 million for 1997 primarily attributable to the
Company's adoption of the Emerging Issue Task Force ("EITF")
Issue No. 98-9 "Accounting for Contingent Rent in Interim
Financial Periods" in 1998.
Expense reimbursements increased $609, or 12%, from $5.0 million
for 1997 to $5.6 million for 1998 of which $743 was attributable
to the RDC Properties. This was offset by the impact of lower
recoverable operating expenses within the remaining portfolio for
1998.
Total operating expenses increased $5.7 million, or 25%, to $28.6
million for 1998 from $22.9 million for 1997.
Property operating expenses increased $2.1 million, or 32%, to
$8.9 million for 1998 compared to $6.7 million for 1997. Of this
increase, $1.3 million was attributable to the RDC Properties.
The remaining increase was primarily due to those factors as
previously discussed for the three months ended September 30,
1998, as well as the impact of a reversal of a $245,000 reserve
for environmental remediation costs for the Cloud Springs Plaza
in 1997 following notification in March 1997 from the Georgia
Department of Natural Resources that contamination exceeding a
reportable quantity had not occurred.
Real estate taxes increased $640, or 15%, from $4.2 million for
1997 to $4.9 million for 1998 primarily attributable to the RDC
Properties.
Depreciation and amortization increased $937, or 9%, for 1998 of
which $603, or 6%, was attributable to the RDC Properties. The
remaining increase was primarily due to the Company's property
development and expansion activities within the remaining
portfolio.
17
<PAGE> 23
RESULTS OF OPERATIONS, continued
General and administrative expense increased $555, or 34%, from
$1.6 million for 1997 to $2.2 million for 1998, which was
primarily attributable to the RDC Properties.
Non-recurring charges of $1.5 million are costs incurred related
to the RDC Transaction and primarily represent payments made to
certain officers and key employees pursuant to change in control
provisions of employment contracts and severance paid to the
former principal shareholder.
Adjustment of carrying value of property held for sale represents
a 1998 non-cash charge of $11,560 to write-down three properties
to fair market value based on the estimated sales proceeds.
Interest expense of $12.9 million for 1998 increased $1.4
million, or 12%, from $11.5 million for 1997. Of this increase,
$1.1 million, or 10%, was attributable to the RDC Properties.
The remaining increase was primarily a result of higher average
outstanding borrowings related primarily to increased property
development and expansion activities within the remaining
portfolio.
The $707 extraordinary loss is a result of the write-off of
deferred financing fees as a result of the repayment of the
related mortgage debts.
Funds from Operations
The Company, along with most industry analysts, consider funds
from operations("FFO") as defined by the National Association of
Real Estate Investment Trusts ("NAREIT")as an appropriate
supplemental measure of operating performance. However, FFO does
not represent cash generated from operations as defined by
generally accepted accounting principles and is not indicative of
cash available to fund cash needs. It should not be considered as
an alternative to net income for the purpose of evaluating the
Company's performance or to cash flows as a measure of liquidity.
Generally, NAREIT defines FFO as net income (loss) before gains
losses) on sales of property, non-recurring charges and
extraordinary items, adjusted for certain non-cash charges,
primarily depreciation and amortization of capitalized leasing
costs.
18
<PAGE> 24
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands, except per share amounts)
Three months ended Nine months ended
9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C>
Revenues
Minimum rents (a) $13,053 $ 8,280 $29,930 $24,892
Percentage rents 386 705 1,474 2,230
Expense reimbursements 2,444 1,611 5,724 5,015
Other 470 183 828 756
------- ------- ------- -------
Total revenues 16,353 10,779 37,956 32,893
------- ------- ------- -------
Operating Expenses
Property operating (b) 4,086 2,031 8,449 6,921
Real estate taxes 2,134 1,393 4,964 4,246
General and administrative 1,164 537 2,190 1,637
------- ------- ------- -------
Total operating expenses 7,384 3,961 15,603 12,804
------- ------- ------- -------
Operating income 8,969 6,818 22,353 20,089
Interest expense (5,145) (3,888) (13,064)(11,533)
Amortization of deferred
financing costs (192) (127) (516) (432)
Depreciation of non-real
estate assets (47) (52) (148) (156)
------- ------- ------- -------
Funds from operations $ 3,585 $ 2,751 $ 8,625 $ 7,968
======= ======= ======= =======
Funds from operations
per share (c) $ 0.15 $ 0.27 $ 0.57 $ 0.78
======= ======= ======= =======
Reconciliation of funds from operations to net income
determined in accordance with Generally Accepted Accounting
Principles (GAAP)
Funds from operations
above $ 3,585 $ 2,751 $ 8,625 $ 7,968
Depreciation of real estate
and amortization of leasing
costs (4,031) (3,368) (10,591) (9,648)
Straight-line rents and
related write-offs, (net) 1 74 3 176
Adjust reserve for environmental
remediation costs -- -- (88) 245
Non-recurring RDC Transaction
related charges (919) -- (1,473) --
Loss on sale of property -- -- -- (12)
<PAGE> 25
Adjustment of carrying
value of property held
for sale (11,560) -- (11,560) --
Minority interest 2,559 72 2,922 161
Extraordinary item - loss
on extinguishment of debt (439) -- (707) --
Other non-cash adjustments 4 (1) (25) (20)
------- ------- ------- -------
Net loss $(10,800) $ (472) $(12,894)$(1,130)
======= ======= ======= =======
Net loss per share (d) $ (0.60) $ (0.06) $ (1.10)$ (0.13)
======= ======= ======= =======
</TABLE>
19
<PAGE> 26
(a) Excludes income from straight-lining of rents.
(b) Represents all expenses other than depreciation,
amortization, write-off of unbilled rent receivables
recognized on a straight-line basis, non-cash charges
for compensation expense related to the Company's restricted
share plan and certain non-recurring expenses.
(c) Assumes full conversion of 11,184,143 and 1,623,000 OP Units
into Common Shares for the nine months ended September 30,
1998 and 1997, respectively.
(d) Net loss per share (basic and diluted) is computed based
on the weighted average number of Common Shares outstanding
for the nine months ended September 30, 1998 and 1997 of
11,764,133 and 8,551,173, respectively.
20
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Recent Developments
On August 12, 1998 Mark Centers Trust completed the RDC
Transaction. In connection with the RDC Transaction, the
Operating Partnership acquired (i) fee title or all, or
substantially all, of the ownership interests in twelve shopping
centers, five multi-family properties and one redevelopment
property, (ii) a 49% interest in one shopping center, (iii)
certain third party management contracts, and (iv) certain
promissory notes from real estate investment partnerships and
related entities, which are not under common control, in which
RDC serves as general partner or in another similar management
capacity, for approximately 11.1 million OP Units and
approximately 2.0 million Common Shares valued at $97,2 million.
In addition, the Company assumed mortgage debt aggregating $154.2
million and incurred other capitalized transaction costs of $5.8
million resulting in an aggregate purchase price of $257.2
million. Pursuant to the terms of the RDC Transaction, the
recipients of the OP Units and Common Shares are restricted,
subject to certain limited exceptions, from selling or
transferring such OP Units or Common Shares prior to the one year
anniversary of the closing of the RDC Transaction.
As part of the RDC Transaction, Mark Centers Trust issued
approximately 13.3 million Common Shares to the RDC Funds in
exchange for $100.0 million. The proceeds from the issuance of
Common Shares were used as follows:
Repayment of mortgage notes payable $ 70.5
Repayment of note payable to shareholder 3.0
Transaction costs allocable to stock issuance 3.9
Transaction costs allocable to RDC properties,
RDC management contracts and contributed notes 4.5
Payment of liabilities assumed in connection
with acquisition of RDC properties, RDC
management contracts and contributed notes 1.3
Prepayment and assumption fees on mortgage
notes repaid 0.4
Contractual payments to Company management
personnel pursuant to severance and change in
control obligations and other RDC Transaction
expenses 1.5
Additions to working capital 14.9
------
$100.0
======
As a result of the RDC Transaction, the RDC Funds owned 63% of
the Common Shares in the Company. Each of the RDC Funds has
appointed each of its partners as such RDC Funds' proxy with
respect to the Common Shares to which such partner would be
21
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES, continued
entitled upon a dissolution of such RDC Fund and a distribution
of such Common Shares among the partners. Other real estate
investment partnerships and related entities in which RDC or its
affiliates serve as general partner or in another similar
management capacity, owned 93% of the minority interest in the
Operating Partnership as limited partners. Collectively, after
giving effect to the conversion of their OP Units, which are
generally exchangeable for Common Shares on a one-for-one basis,
these entities and the RDC Funds beneficially owned 72% of the
Common Shares as of the closing of the RDC Transaction.
The Company has accounted for the RDC Transaction as (i) a
purchase of properties and other related assets in exchange for
OP Units and Common Shares and the assumption of certain mortgage
debt and other liabilities using the purchase method of
accounting and (ii) an issuance of Common Shares for cash.
Accordingly, the accompanying consolidated financial statements
include the operations of the properties acquired in the RDC
Transaction from August 12, 1998 through September 30, 1998.
The Operating Partnership is also obligated to acquire from an
RDC affiliate its 25% ownership interest in a shopping center
currently under construction. Upon completion of construction
and attainment of certain occupancy levels, the Operating
Partnership will issue OP Units valued at $5.5 million. In
addition, the Operating Partnership is obligated to issue
additional OP Units valued at $2.8 million upon the completion of
certain improvements and the commencement of rental payments from
a designated tenant at one of the properties acquired in the RDC
Transaction.
Concurrent with the closing of the RDC Transaction, the Company
appointed Ross Dworman and Kenneth F. Bernstein, the Chief
Executive Officer and Chief Operating Officer, respectively of
RDC, as the Chairman and Chief Executive Officer, and President,
respectively, of the Company. Messrs. Dworman and Bernstein,
together with two designees of RDC, were appointed to the Board
of Trustees.
Following the completion of the RDC Transaction, the Company
changed its name from Mark Centers Trust to Acadia Realty Trust
and the name of the Operating Partnership was changed from Mark
Centers Limited Partnership to Acadia Realty Limited Partnership.
Financing and Debt
In connection with the properties acquired in the RDC
Transaction, the Company assumed $154.2 million of mortgage
debt, of which $48.6 million was retired using a portion of the
proceeds from the issuance of Common Shares. Mortgage debt
totaling $21.9 million, which was outstanding prior to the RDC
Transaction, was also retired using a portion of the proceeds
from the issuance of Common Shares.
22
<PAGE> 29
Financing and Debt, continued
As of September 30, 1998, the Company had an aggregate $52.8
million borrowing from Sun America Life Insurance Company which
was assumed in connection with the RDC Transaction. Approximately
$44.0 million of these loans are cross-collateralized by five of
the Company's properties, bear interest at a fixed rate of 7.75%,
require monthly payments of interest and principal amortized over
25 years and mature in January 2001. The remaining loan in the
amount of $8.8 million is collateralized by one of the Company's
properties, bears interest at 7.75%, matures June 1999 and
requires principal amortization payments over a 25 year period.
Each of the loans contain yield maintenance provisions.
The Company had other fixed rate mortgage debt assumed in
connection with the RDC Transaction with three separate lenders
aggregating $22.6 million as of September 30, 1998. These loans,
which are secured by three of the Company's properties, bear
interest ranging from 7.73% to 8.32%, require monthly payments of
interest and principal amortized over 25 years and mature between
June 1999 and March 2004.
As of September 30, 1998, the Company also had variable rate
mortgage debt assumed in connection with the RDC Transaction with
three separate lenders aggregating $30.1 million. These loans,
which are secured by three of the Company's properties, require
monthly payment of interest based on LIBOR plus spreads ranging
from 1.25% to 1.78% or the lender's commercial paper rate plus
2.65% and mature December 2000 and May 2002.
As of September 30, 1998 interest on the Company's mortgage
indebtedness ranged from 6.9% to 9.1% with maturities that ranged
from June 1999 to November 2021. Of the total outstanding debt,
$248.3 million, or 89%, was carried at fixed interest rates with
a weighted average of 8.4% and $30.1 million, or 11%, was carried
at variable rates with a weighted average of 7.4%. Of the total
outstanding debt, $107.7 million will become due by 2000, with
scheduled maturities of $12.9 million in 1999 and $94.8 million
in 2000. As the Company does not anticipate having sufficient
cash on hand to repay such indebtedness, it will need to
refinance this indebtedness or select other alternatives based on
market conditions at that time. The Company believes that the
current loan-to-value ratios on the collateral properties are at
levels which would allow it to fully refinance these loans on
commercially competitive terms.
Property Development and Expansion
In connection with the RDC Transaction, the Company acquired a
39,744 square foot retail and residential building located in
Greenwich, Connecticut. The building, which is currently vacant,
is being completely refurbished, and when completed in 1999 will
consist of approximately 17,000 square feet of retail space and
21 apartments (approximately 15,000 square feet). Approximately
12,300 square feet of retail space has been pre-leased to a
national tenant. As of September 30, 1999, costs incurred to
date were $10.6 million. The Company expects that an additional
$4.2 million will be required to complete this project.
23
<PAGE> 30
Property Development and Expansion, continued
The Company is also redeveloping and expanding a 100,252 square
foot retail center located in Rocky Hill, Connecticut. The
center, which was also acquired in the RDC Transaction, is
anchored by a 41,665 square foot Waldbaum's (A&P) Supermarket and
an adjacent 92,500 square foot Caldor Department Store (Caldor
owns and operates the store). After redevelopment and expansion,
the center will total 113,252 square feet anchored by an expanded
64,665 square foot Waldbaum's Supermarket. The renovation will
also include a new parking lot and exterior facade. The Company
expects that $4.6 million will be required to complete this
project.
The Company has executed leases with Walmart and Circuit City for
approximately 121,000 and 33,000 square feet, respectively, in
the Ledgewood Mall in Ledgewood, New Jersey. The spaces are
currently being built out and the costs estimated to complete
these projects total $4.7 million.
For the remaining portfolio, the Company currently estimates that
capital outlays of approximately $7.2 million will be required
for tenant improvements, related renovations and other property
improvements related to executed leases.
Sources of capital for funding property development, property
expansion and renovation and future property acquisitions are
expected to be obtained from additional equity offerings and
additional debt financings. As of September 30, 1998, the
Company also had cash available of $19.2 million as well as 12
properties which are currently unencumbered and therefore
available as potential collateral for future borrowings.
The Company anticipates that cash flow from operating activities
will continue to provide adequate capital for all debt service
payments, recurring capital expenditures and REIT distribution
requirements.
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares the
Company's cash flow for the nine months ended September 30, 1998
("1998") with the Company's cash flow for the nine months ended
September 30, 1997 ("1997").
Net cash provided by operating activities decreased from $9.0
million for 1997 to $7.3 million for 1998. This variance was
primarily attributable to a $2.6 million increase in cash used to
pay prepaid expenses for 1998.
Investing activities used $19.4 million during 1998, representing
a $11.1 million increase from $8.3 million of cash used during
1997, which was primarily a result of the RDC Transaction
previously discussed under "Liquidity and Capital Resources".
Net cash provided by financing activities of $30.0 million
increased $33.4 million compared to $3.4 million used during
1997. The increase resulted primarily from $96.1 million of net
24
<PAGE> 31
HISTORICAL CASH FLOW, continued
proceeds from the issuance of Common Shares and a $9.4 million
reduction in dividends and distributions paid in 1998. This was
partially offset primarily by additional cash of $68.5 million
used in 1998 for the repayment of debt and a $5.2 million
decrease in cash provided by additional borrowings.
INFLATION
The Company's long-term leases contain provisions designed to
mitigate the adverse impact of inflation on the Company's net
income. Such provisions include clauses enabling the Company to
receive percentage rents based on tenants' gross sales, which
generally increase as prices rise, and/or, in certain cases,
escalation clauses, which generally increase rental rates during
the terms of the leases. Such escalation clauses are often
related to increases in the consumer price index or similar
inflation indexes. In addition, many of the Company's leases are
for terms of less than ten years, which permits the Company to
seek to increase rents upon re-rental at market rates if rents
are below the then existing market rates. Most of the Company's
leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes,
insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from
inflation.
YEAR 2000 COMPLIANCE
The year 2000 ("Y2K") problem refers to computer applications
using only the last two digits to refer to a year rather than all
four digits. As a result, these applications could fail or
create erroneous results if they recognize "00" as the year 1900
rather than year 2000. The Company has taken Y2K initiatives in
three general areas which represent the areas that could have an
impact on the Company: information technology systems, non-
information technology systems and third party issues. The
following is a summary of these initiatives:
Information technology and related costs: The Company's
information technology systems generally consist of file servers,
workstations, operating systems and applications which are all
purchased systems. The Company's assessment and testing of these
systems has revealed that they are Y2K compliant. Furthermore,
during the third quarter of 1998, the Company commenced
installation of additional hardware and software (purchased
systems)related to its accounting systems which are Y2K compliant
as well. These hardware and accounting software upgrade and
conversions are being executed under maintenance and support
agreements with vendors. The total cost of the accounting
conversion is estimated at approximately $200,000 of which
$150,000 has already been expended, and is not material to the
operating results or financial position of the Company.
Non-information technology and related costs: Non-information
technology consists mainly of facilities management systems such
as telephone, utility and security systems for its properties.
The Company is in the process of identifying date sensitive
25
<PAGE> 32
YEAR 2000 COMPLIANCE, continued
systems and equipment including HVAC units, telephones, security
systems and alarms, fire and flood warning systems and general
office systems at its properties. Assessment and testing of
these systems is about 25% complete and expected to be completed
by no later than second quarter 1999. The identification and
remediation of systems at the properties is being accomplished by
Company personnel with the assistance of consultants, for which
both costs are being recorded as normal operating expense. Based
on preliminary assessment the cost of any upgrades or replacement
is not expected to be significant.
Third parties and related costs: The Company has begun
assessment of major third parties' Y2K readiness including
tenants, contractors and key suppliers of outsourced services
including, property maintenance, stock transfer, debt servicing,
banking collection and disbursement, payroll and benefits. Some
of these third parties are publicly traded corporations subject
to disclosure requirements for which the Company currently
monitors Y2K disclosures in SEC filings. The majority of the
Company's private vendors are small suppliers that the Company
believes can manually execute their business and are readily
replaceable. Management also believes there is no material risk
of being unable to procure necessary supplies and services.
Third party assessment is about 30% complete and expected to be
completed by second quarter of 1999. The assessment of third
party readiness is being conducted by Company personnel whose
costs are recorded as normal operating expenses. The Company is
not yet in a position to estimate the cost of third party
compliance issues, but has no reason to believe that such costs
will be material.
Risks: The principal risk to the Company relating to the
successful implementation of its accounting system hardware and
software upgrades is failure to correctly bill tenants by
December 31, 1999 and pay invoices when due. Management believes
it has adequate resources, or could obtain the needed resources,
to manually bill tenants and pay bills until the systems become
operational.
The principal risks to the Company relating to non-information
systems at the properties are failure to identify time-sensitive
systems and inability to find an appropriate replacement system.
The Company believes that adequate replacement components or new
systems are available at reasonable prices and are in good
supply. The Company also believes that adequate time and
resources are available to remediate these areas as needed.
The principal risks to the Company in its relationship with third
parties are failure of third party systems used to conduct
business such as: disruption of tenant operations at the
properties; banks being unable to process receipts and
disbursements; vendors being unable to supply needed materials
and services to the Company's properties; and processing of
outsourced employee payroll. Based on Y2K compliance work done
26
<PAGE> 33
YEAR 2000 COMPLIANCE, continued
to date, the Company has no reason to believe that key tenants,
banks and suppliers will not be Y2K compliant in all material
respects or can not be replaced within an acceptable timeframe.
Contingency plans: The Company intends to deal with contingency
planning during the second quarter of 1999 after the results of
the above assessments and related remediation are known.
The Company's description of its Y2K compliance issue is based
upon information obtained by management through evaluations of
internal business systems and tenant and vendor compliance
efforts. No assurance can be given that the Company will be able
to address the Y2K issues for all its systems in a timely manner
or that it will not encounter unexpected difficulties or
significant expenses relating to adequately addressing the Y2K
issue. If the Company or the major tenants or vendors with whom
the Company does business fail to address their major issues, the
Company's operating results or financial position could be
materially adversely affected.
27
<PAGE> 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material legal proceedings beyond
those previously disclosed in the Registrants
previously filed Form 10-K for the year ended December
31, 1997.
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Equity Securities
(i) Securities Sold
The following table sets forth the date of sale, title
and amounts of unregistered securities sold by the
Company since December 31, 1997:
Date of Sale Title Amount
------------ ----- ------
August 12, 1998 OP Units 11,100,000
August 12, 1998 Common Shares 15,322,381
(ii) Underwriters and Other Purchases
August 12, 1998 Sales. Underwriters were not retained
in connection with the sale of these securities. These
OP Units and Common Shares were sold to the
contributors of the RDC Properties and RDC Funds who
contributed cash, all of whom were "accredited
investors".
(iii) Consideration
August 12, 1998 Sales. The OP Units were issued in
exchange for property, third party management contracts
and certain promissory notes having a value of
approximately $83.3 million. 13,333,333 Common Shares
were issued in exchange for $100.0 million. 1,989,048
shares were issued in exchange for property having a
value of approximately $14.0 million. There were no
underwriting discounts or commissions with respect to
such securities.
(iv) Exemption from Registration Claimed
The OP Units and Common Shares were issued to
"accredited investors" in a transaction which was
exempt from registration under Section 4(2) of the
Securities Act of 1933.
28
<PAGE> 35
PART II. OTHER INFORMATION
Item 2. Changes in Securities, continued
Other
On July 2, 1998, Marvin Slomowitz, the former principal
shareholder, converted 800,000 OP Units to Common
Shares on a one-for-one basis.
On August 12, 1998, certain OP Unit holders converted
738,857 OP Units to Common Shares on a one-for-one
basis.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On August 12, 1998, the Registrant held its annual
meeting of shareholders. The shareholders voted, in
person or by proxy for the following proposals. The
results of the voting are shown below:
Proposal 1 -
The adoption and approval of the contribution agreement
with RD Capital, Inc. dated April 15, 1998 and the
transaction contemplated thereby.
Votes Cast For Votes Cast Against Abstain
5,447,654 594,776 47,023
Proposal 2 -
Votes Cast For Votes Withheld
Election of Trustees:
Marvin L. Slomowitz 8,028,518 610,860
Joseph L. Castle, II 8,029,118 610,260
Marvin J. Levine, Esq. 8,029,318 610,060
Lawrence J. Longua 8,029,318 610,060
Harvey Shanus 8,029,518 610,860
John Vincent Weber 8,029,718 610,660
Proposal 3 -
To amend the Declaration of Trust to increase the
authorized shares from 50,000,000 shares to 100,000,000
shares.
Votes Cast For Votes Cast Against Abstain
7,853,736 733,026 52,614
Proposal 4 -
To amend the Declaration of Trust to change Mark
Centers Trust's name to "Acadia Realty Trust".
Votes Cast For Votes Cast Against Abstain
5,737,037 304,852 47,564
29
<PAGE> 36
PART II. OTHER INFORMATION
Item 5. Other Information
On August 20, 1998 and October 23, 1998, the Board
of Trustees appointed the following officers:
Robert Masters, Esq. - Senior Vice President
Perry Kamerman - Senior Vice President and Treasurer
Joel Braun - Senior Vice President
Jon Grisham - Assistant Treasurer
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are filed with this
Quarterly Report on Form 10-Q.
3.1 (a) Fourth Amendment to Declaration of Trust
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
Date of Report
(Date of Earliest
Event Reported) Item Reported Date Filed
August 12, 1998 The consummation August 26, 1998
and closing of
the RDC Transaction
30
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has fully caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ACADIA REALTY TRUST
By: /s/ Ross Dworman
Chairman and Chief Executive
Officer (Principal Executive
Officer)
/s/ Perry Kamerman
Senior Vice President of
Finance (Principal Financial
and Accounting Officer)
Date: November 16, 1998
31
<PAGE> 38
INDEX OF EXHIBITS
3.1 (a) Fourth Amendment to Declaration of Trust
27 Financial Data Schedule (EDGAR filing only)
32
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000899629
<NAME> ACADUA REALTY TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,213
<SECURITIES> 0
<RECEIVABLES> 6,890
<ALLOWANCES> 1,652
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 543,054
<DEPRECIATION> 83,057
<TOTAL-ASSETS> 527,302
<CURRENT-LIABILITIES> 0
<BONDS> 278,420
0
0
<COMMON> 25
<OTHER-SE> 155,747
<TOTAL-LIABILITY-AND-EQUITY> 527,302
<SALES> 0
<TOTAL-REVENUES> 37,850
<CGS> 0
<TOTAL-COSTS> 28,607
<OTHER-EXPENSES> 11,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,886
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,187)
<DISCONTINUED> 0
<EXTRAORDINARY> (707)
<CHANGES> 0
<NET-INCOME> (12,894)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
<PAGE>
Mark Centers Trust
Fourth Amendment to Declaration
of Trust
Dated: August 12, 1998
Mark Centers Trust, a Real Estate Investment Trust formed
pursuant to Title 8 of the Corporations and Associations Article
of the Annotated Code of Maryland (1993 Replacement Volume) (the
"REIT"), hereby certifies to the State Department of Assessments
and Taxation:
FIRST: That SECTION 1.1 of the Declaration of Trust of the
REIT is hereby amended by deleting therefrom the name "Mark
Centers Trust" and by substituting in lieu thereof the name
"Acadia Realty Trust."
SECOND: That SECTION 6.1 of the Declaration of Trust of the
REIT is hereby amended by deleting from the second sentence
thereof the number of "50,000,000" and by substituting in lieu
thereof the number "100,000,000."
THIRD: This Amendment to the REIT's Declaration of Trust
was duly approved by the affirmative vote of the holders of not
less than a majority of the shares issued by the REIT and then
outstanding on July 8, 1998.
IN WITNESS WHEREOF, Mark Centers Trust has caused these
presents to be signed in its name an on its behalf by its Senior
Vice President and attested by its Secretary, this 12th day of
August, 1998. Each of the undersigned officers of Mark Centers
Trust acknowledges, under the penalties for perjury, that this
Fourth Amendment to Declaration of Trust is the act of the REIT
and that, to the best of his knowledge, information and belief,
the matters and facts set forth herein are true in all material
respects.
ATTEST: MARK CENTERS TRUST
/s/ Marvin J. Levine /s/ Joshua Kane
Marvin J. Levine, Secretary Joshua Kane, Senior Vice President
and Chief Financial Officer
