10-Q 1 akr10-q09302013.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2013
or
o 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.)
1311 MAMARONECK AVENUE, SUITE 260, WHITE PLAINS, NY (Address of principal executive offices) | 10605 (Zip Code)

(914) 288-8100
(Registrant’s telephone number, including area code)
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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

YES x |  | NO o

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

Large Accelerated Filer x |  | Accelerated Filer o
Non-accelerated Filer o |  | Smaller Reporting Company o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No x
As of November 5, 2013 there were 55,549,007 common shares of beneficial interest, par value $.001 per share, outstanding.

ACADIA REALTY TRUST AND SUBSIDIARIES
FORM 10-Q
INDEX

|  | Page
Part I: | Financial Information |
Item 1. | Financial Statements |
| Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012 | 1
| Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012 (unaudited) | 2
| Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012 (unaudited) | 3
| Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2013 (unaudited) | 4
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (unaudited) | 5
| Notes to Consolidated Financial Statements | 7
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 40
Item 4. | Controls and Procedures | 40
Part II: | Other Information |
Item 1. | Legal Proceedings | 41
Item 1A. | Risk Factors | 41
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41
Item 3. | Defaults Upon Senior Securities | 41
Item 4. | Mine Safety Disclosures | 41
Item 5. | Other Information | 41
Item 6. | Exhibits | 41
| Signatures | 42
| Exhibit Index | 43

Part I. Financial Information
Item 1. Financial Statements.
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(dollars in thousands) | September 30, 2013 |  | December 31, 2012
ASSETS | (unaudited) |  |
Operating real estate |  |  |
Land | $ | 318,539 |  |  | $ | 276,109 |
Buildings and improvements | 1,023,184 |  |  | 773,058 |
Construction in progress | 7,256 |  |  | 2,364 |
| 1,348,979 |  |  | 1,051,531 |
Less: accumulated depreciation | 218,921 |  |  | 167,689 |
Net operating real estate | 1,130,058 |  |  | 883,842 |
Real estate under development | 334,445 |  |  | 246,602 |
Notes receivable, net | 95,352 |  |  | 129,278 |
Investments in and advances to unconsolidated affiliates | 199,113 |  |  | 221,904 |
Cash and cash equivalents | 88,421 |  |  | 91,813 |
Cash in escrow | 19,971 |  |  | 15,846 |
Restricted cash | 134,392 |  |  | — |
Rents receivable, net | 23,731 |  |  | 17,320 |
Deferred charges, net | 29,941 |  |  | 18,343 |
Acquired lease intangibles, net | 32,583 |  |  | 28,576 |
Prepaid expenses and other assets | 44,858 |  |  | 28,252 |
Assets of discontinued operations | 216,503 |  |  | 226,664 |
Total assets | $ | 2,349,368 |  |  | $ | 1,908,440 |
LIABILITIES |  |  |  |  |
Mortgage and other notes payable | $ | 1,004,175 |  |  | $ | 603,043 |
Convertible notes payable | 380 |  |  | 930 |
Distributions in excess of income from, and investments in, unconsolidated affiliates | 12,426 |  |  | 22,707 |
Accounts payable and accrued expenses | 36,694 |  |  | 27,437 |
Dividends and distributions payable | 11,984 |  |  | 9,674 |
Acquired lease intangibles, net | 22,204 |  |  | 14,115 |
Other liabilities | 16,318 |  |  | 14,207 |
Liabilities of discontinued operations | 132,031 |  |  | 146,071 |
Total liabilities | 1,236,212 |  |  | 838,184 |
EQUITY |  |  |  |  |
Shareholders' Equity |  |  |
Common shares, $.001 par value, authorized 100,000,000 shares; issued and outstanding 55,448,856 and 52,482,598 shares, respectively | 55 |  |  | 52 |
Additional paid-in capital | 660,160 |  |  | 581,925 |
Accumulated other comprehensive loss | (746 | ) |  | (4,307 | )
Retained earnings | 38,294 |  |  | 45,127 |
Total shareholders’ equity | 697,763 |  |  | 622,797 |
Noncontrolling interests | 415,393 |  |  | 447,459 |
Total equity | 1,113,156 |  |  | 1,070,256 |
Total liabilities and equity | $ | 2,349,368 |  |  | $ | 1,908,440 |

See accompanying notes
1

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
(dollars in thousands, except per share amounts) | 2013 |  | 2012 |  | 2013 |  | 2012
Revenues |  |  |  |  |  |  |
Rental income | $ | 29,913 |  |  | $ | 21,708 |  |  | $ | 88,067 |  |  | $ | 59,208 |
Interest income | 2,969 |  |  | 1,921 |  |  | 9,265 |  |  | 6,127 |
Expense reimbursements | 7,279 |  |  | 4,567 |  |  | 20,800 |  |  | 13,770 |
Other | 157 |  |  | 635 |  |  | 3,759 |  |  | 1,928 |
Total revenues | 40,318 |  |  | 28,831 |  |  | 121,891 |  |  | 81,033 |
Operating Expenses |  |  |  |  |  |  |  |  |  |
Property operating | 5,095 |  |  | 3,874 |  |  | 13,387 |  |  | 10,112 |
Other operating | 842 |  |  | 613 |  |  | 2,743 |  |  | 2,929 |
Real estate taxes | 5,795 |  |  | 4,353 |  |  | 15,739 |  |  | 11,973 |
General and administrative | 5,335 |  |  | 5,517 |  |  | 17,261 |  |  | 16,636 |
Depreciation and amortization | 10,450 |  |  | 7,376 |  |  | 29,278 |  |  | 20,671 |
Total operating expenses | 27,517 |  |  | 21,733 |  |  | 78,408 |  |  | 62,321 |
Operating income | 12,801 |  |  | 7,098 |  |  | 43,483 |  |  | 18,712 |
Equity in earnings (losses) of unconsolidated affiliates | 4,209 |  |  | (2,538 | ) |  | 7,274 |  |  | 1,997 |
Impairment of asset | — |  |  | — |  |  | (1,500 | ) |  | — |
Interest and other finance expense | (10,517 | ) |  | (6,085 | ) |  | (29,562 | ) |  | (16,547 | )
Income (loss) from continuing operations before income taxes | 6,493 |  |  | (1,525 | ) |  | 19,695 |  |  | 4,162 |
Income tax (provision) benefit | (186 | ) |  | 104 |  |  | (53 | ) |  | (1,125 | )
Income (loss) from continuing operations | 6,307 |  |  | (1,421 | ) |  | 19,642 |  |  | 3,037 |
Discontinued Operations |  |  |  |  |  |  |
Operating income from discontinued operations | 2,835 |  |  | 2,159 |  |  | 6,100 |  |  | 9,030 |
Gain on sale of properties | — |  |  | 5,917 |  |  | 4,191 |  |  | 8,585 |
Income from discontinued operations | 2,835 |  |  | 8,076 |  |  | 10,291 |  |  | 17,615 |
Net income | 9,142 |  |  | 6,655 |  |  | 29,933 |  |  | 20,652 |
Noncontrolling interests |  |  |  |  |  |  |  |  |  |
Continuing operations | 2,551 |  |  | 7,223 |  |  | 6,391 |  |  | 11,775 |
Discontinued operations | (2,208 | ) |  | (6,297 | ) |  | (8,459 | ) |  | (13,998 | )
Net loss (income) attributable to noncontrolling interests | 343 |  |  | 926 |  |  | (2,068 | ) |  | (2,223 | )
Net income attributable to Common Shareholders | $ | 9,485 |  |  | $ | 7,581 |  |  | $ | 27,865 |  |  | $ | 18,429 |
Basic Earnings per Share |  |  |  |  |  |  |  |  |  |
Income from continuing operations | $ | 0.16 |  |  | $ | 0.12 |  |  | $ | 0.47 |  |  | $ | 0.33 |
Income from discontinued operations | 0.01 |  |  | 0.04 |  |  | 0.03 |  |  | 0.08 |
Basic earnings per share | $ | 0.17 |  |  | $ | 0.16 |  |  | $ | 0.50 |  |  | $ | 0.41 |
Diluted Earnings per Share |  |  |  |  |  |  |  |  |  |
Income from continuing operations | $ | 0.16 |  |  | $ | 0.12 |  |  | $ | 0.47 |  |  | $ | 0.33 |
Income from discontinued operations | 0.01 |  |  | 0.04 |  |  | 0.03 |  |  | 0.08 |
Diluted earnings per share | $ | 0.17 |  |  | $ | 0.16 |  |  | $ | 0.50 |  |  | $ | 0.41 |

See accompanying notes
2

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2013 |  | 2012 |  | 2013 |  | 2012
(dollars in thousands) |  |  |  |  |  |  |  |
Net income |  | $ | 9,142 |  |  | $ | 6,655 |  |  | $ | 29,933 |  |  | $ | 20,652 |
Other comprehensive (loss) income |  |  |  |  |  |  |  |
Unrealized (loss) income on valuation of swap agreements |  | (857 | ) |  | (1,315 | ) |  | 2,247 |  |  | (3,870 | )
Reclassification of realized interest on swap agreements |  | 795 |  |  | 681 |  |  | 2,132 |  |  | 1,964 |
Other comprehensive (loss) income |  | (62 | ) |  | (634 | ) |  | 4,379 |  |  | (1,906 | )
Comprehensive income |  | 9,080 |  |  | 6,021 |  |  | 34,312 |  |  | 18,746 |
Comprehensive loss (income) attributable to noncontrolling interests |  | 416 |  |  | 1,282 |  |  | (2,886 | ) |  | (1,167 | )
Comprehensive income attributable to Common Shareholders |  | $ | 9,496 |  |  | $ | 7,303 |  |  | $ | 31,426 |  |  | $ | 17,579 |

See accompanying notes
3

ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(unaudited)

| Common Shares |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Loss |  | Retained Earnings |  | Total Shareholders’ Equity |  | Noncontrolling Interests |  | Total Equity
(amounts in thousands, except per share amounts) | Shares |  | Amount |  |  |  |  |  |
Balance at December 31, 2012 | 52,482 |  |  | $ | 52 |  |  | $ | 581,925 |  |  | $ | (4,307 | ) |  | $ | 45,127 |  |  | $ | 622,797 |  |  | $ | 447,459 |  |  | $ | 1,070,256 |
Conversion of OP Units to Common Shares by limited partners of the Operating Partnership | 92 |  |  | — |  |  | 1,548 |  |  | — |  |  | — |  |  | 1,548 |  |  | (1,548 | ) |  | — |
Issuance of Common Shares, net of issuance costs | 2,822 |  |  | 3 |  |  | 75,762 |  |  | — |  |  | — |  |  | 75,765 |  |  | — |  |  | 75,765 |
Dividends declared ($0.63 per Common Share) | — |  |  | — |  |  | — |  |  | — |  |  | (34,698 | ) |  | (34,698 | ) |  | (1,014 | ) |  | (35,712 | )
Employee and trustee stock compensation, net | 53 |  |  | — |  |  | 925 |  |  | — |  |  | — |  |  | 925 |  |  | 3,667 |  |  | 4,592 |
Consolidation of previously unconsolidated investment | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (33,949 | ) |  | (33,949 | )
Noncontrolling interest distributions | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (29,623 | ) |  | (29,623 | )
Noncontrolling interest contributions | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 27,515 |  |  | 27,515 |
| 55,449 |  |  | 55 |  |  | 660,160 |  |  | (4,307 | ) |  | 10,429 |  |  | 666,337 |  |  | 412,507 |  |  | 1,078,844 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 27,865 |  |  | 27,865 |  |  | 2,068 |  |  | 29,933 |
Unrealized income on valuation of swap agreements | — |  |  | — |  |  | — |  |  | 2,173 |  |  | — |  |  | 2,173 |  |  | 74 |  |  | 2,247 |
Reclassification of realized interest on swap agreements | — |  |  | — |  |  | — |  |  | 1,388 |  |  | — |  |  | 1,388 |  |  | 744 |  |  | 2,132 |
Total comprehensive income | — |  |  | — |  |  | — |  |  | 3,561 |  |  | 27,865 |  |  | 31,426 |  |  | 2,886 |  |  | 34,312 |
Balance at September 30, 2013 | 55,449 |  |  | $ | 55 |  |  | $ | 660,160 |  |  | $ | (746 | ) |  | $ | 38,294 |  |  | $ | 697,763 |  |  | $ | 415,393 |  |  | $ | 1,113,156 |

4

ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| Nine Months Ended
| September 30,
(dollars in thousands) | 2013 |  | 2012
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |
Net income | $ | 29,933 |  |  | $ | 20,652 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |
Depreciation and amortization | 32,054 |  |  | 29,653 |
Amortization of financing costs | 2,801 |  |  | 2,395 |
Gain on sale of property | (4,191 | ) |  | (8,585 | )
Impairment of asset | 1,500 |  |  | — |
Share-based compensation expense | 4,590 |  |  | 3,056 |
Equity in earnings of unconsolidated affiliates | (7,274 | ) |  | (1,997 | )
Distributions of operating income from unconsolidated affiliates | 4,644 |  |  | 4,087 |
Other, net | (3,598 | ) |  | 336 |
Changes in assets and liabilities |  |  |  |
Cash in escrow | (3,378 | ) |  | 1,939 |
Rents receivable, net | (4,315 | ) |  | (5,639 | )
Prepaid expenses and other assets | (19,894 | ) |  | (7,625 | )
Accounts payable and accrued expenses | 5,845 |  |  | (3,013 | )
Other liabilities | 2,904 |  |  | 739 |
Net cash provided by operating activities | 41,621 |  |  | 35,998 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |
Acquisition of real estate | (140,075 | ) |  | (137,208 | )
Redevelopment and property improvement costs | (79,549 | ) |  | (55,817 | )
Deferred leasing costs | (4,226 | ) |  | (3,397 | )
Investments in and advances to unconsolidated affiliates | (54,207 | ) |  | (19,356 | )
Return of capital from unconsolidated affiliates | 88,403 |  |  | 13,497 |
Consolidation of previously unconsolidated investment | 1,864 |  |  | — |
Proceeds from notes receivable | 15,779 |  |  | 2,005 |
Issuance of notes receivable | — |  |  | (34,500 | )
Proceeds from sale of properties, net | 11,815 |  |  | 44,703 |
Net cash used in investing activities | (160,196 | ) |  | (190,073 | )

5

ACADIA REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
| Nine Months Ended
| September 30,
(dollars in thousands) | 2013 |  | 2012
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |
Principal payments on mortgage notes | (140,037 | ) |  | (189,747 | )
Proceeds received from mortgage notes | 360,943 |  |  | 214,276 |
Loan proceeds held as restricted cash | (134,392 | ) |  | — |
Purchase of convertible notes payable | (550 | ) |  | — |
Deferred financing and other costs | (11,018 | ) |  | (6,684 | )
Capital contributions from noncontrolling interests | 27,515 |  |  | 122,309 |
Distributions to noncontrolling interests | (30,572 | ) |  | (63,463 | )
Dividends paid to Common Shareholders | (32,471 | ) |  | (23,671 | )
Proceeds from issuance of Common Shares, net of issuance costs of $1,430 and $2,000, respectively | 75,765 |  |  | 96,540 |
Net cash provided by financing activities | 115,183 |  |  | 149,560 |
Decrease in cash and cash equivalents | (3,392 | ) |  | (4,515 | )
Cash and cash equivalents, beginning of period | 91,813 |  |  | 89,812 |
Cash and cash equivalents, end of period | $ | 88,421 |  |  | $ | 85,297 |
Supplemental disclosure of cash flow information |  |  |  |  |
Cash paid during the period for interest, net of capitalized interest of $6,429 and $4,515, respectively | $ | 29,758 |  |  | $ | 24,528 |
Cash paid for income taxes | $ | 281 |  |  | $ | 941 |
Supplemental disclosure of non-cash investing activities: |  |  |
Acquisition of real estate through assumption of debt | $ | — |  |  | $ | 59,335 |
Acquisition of real estate through issuance of OP Units | $ | — |  |  | $ | 2,279 |
Acquisition of real estate through conversion of notes receivable | $ | 18,500 |  |  | $ | 14,000 |
Consolidation of previously unconsolidated investment |  |  |
Real estate, net | $ | (118,484 | ) |  | $ | — |
Mortgage notes payable | 166,200 |  |  | — |
Distributions in excess of income from, and investments in, unconsolidated affiliates | (10,298 | ) |  | — |
Other assets and liabilities | (1,605 | ) |  | — |
Noncontrolling interest | (33,949 | ) |  | — |
Cash included in consolidation of previously unconsolidated investment | $ | 1,864 |  |  | $ | — |

See accompanying notes
6

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. | ORGANIZATION AND BASIS OF PRESENTATION

Business and Organization
Acadia Realty Trust (the "Trust") and subsidiaries (collectively, the "Company"), is a fully-integrated equity real estate investment trust ("REIT") focused on the ownership, acquisition, redevelopment and management of high-quality retail properties and urban/infill mixed-use properties with a strong retail component located primarily in high-barrier-to-entry, supply constrained, densely-populated metropolitan areas in the United States along the East Coast and in Chicago.
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 September 30, 2013, the Trust controlled approximately 99% of the Operating Partnership as the sole general partner. As the general partner, the Trust 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 OP units ("LTIP Units") as long-term incentive compensation (Note 13). Limited partners holding Common OP Units are generally entitled to exchange their units on a one-for-one basis for common shares of beneficial interest of the Trust ("Common Shares").
As of September 30, 2013, the Company has ownership interests in 74 properties within its core portfolio, which consist of those properties either wholly owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through its opportunity funds ("Core Portfolio"). The Company also has ownership interests in 32 properties within its four opportunity funds, Acadia Strategic Opportunity Fund, L.P. ("Fund I"), Acadia Strategic Opportunity Fund II, LLC ("Fund II"), Acadia Strategic Opportunity Fund III LLC ("Fund III") and Acadia Strategic Opportunity Fund IV LLC ("Fund IV" and together with Funds I, II and III, the "Opportunity Funds"). The 106 Core Portfolio and Opportunity Fund properties consist of commercial properties, which are primarily high-quality urban and/or street retail properties, community shopping centers and mixed-use properties with a retail component. Fund I and Fund II also include investments in operating companies through Acadia Mervyn Investors I, LLC ("Mervyns I"), Acadia Mervyn Investors II, LLC ("Mervyns II") and, in certain instances, directly through Fund II, all on a non-recourse basis. These investments comprise and are referred to as the Company's Retailer Controlled Property Initiative ("RCP Venture").
The Operating Partnership is the sole general partner or managing member of the Opportunity Funds and Mervyns I and II and earns fees or priority distributions for asset management, property management, construction, redevelopment, leasing and legal services. Cash flows from the Opportunity Funds and RCP Venture 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).
Following is a table summarizing the general terms and the Operating Partnership's equity interests in the Opportunity Funds and Mervyns I and II:

Entity | Formation Date | Operating Partnership Share of Capital | Committed Capital (2) |  | Capital Called as of September 30, 2013 (2) | Equity Interest Held By Operating Partnership | Preferred Return | Capital Returned as of September 30, 2013 (2)
Fund I and Mervyns I (1) | 9/2001 | 22.22 | % | $ | 90.0 |  |  | $ | 86.6 |  | 37.78 | % | 9 | % | $ | 86.6 |
Fund II and Mervyns II | 6/2004 | 20.00 | % | 300.0 |  |  | 300.0 |  | 20.00 | % | 8 | % | 84.5 |
Fund III | 5/2007 | 19.90 | % | 475.0 |  |  | 353.5 |  | 19.90 | % | 6 | % | 196.8 |
Fund IV | 5/2012 | 23.12 | % | 540.6 |  |  | 74.0 |  | 23.12 | % | 6 | % | — |

Notes:
(1) Fund I and Mervyns I have returned all capital and preferred return. The Operating Partnership is now entitled to a Promote on all future cash distributions.
(2) Represents the total for the Opportunity Funds, including the Operating Partnership and noncontrolling interests' shares.
7

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
Basis of Presentation
The consolidated financial statements include the consolidated accounts of the Company and its investments in entities in which the Company is presumed to have control in accordance with the consolidation guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). Investments in entities for which the Company has the ability to exercise significant influence but does not have financial or operating control are accounted for under the equity method of accounting. Accordingly, the Company's share of the net earnings (or losses) of entities accounted for under the equity method are included in consolidated net income under the caption, Equity in Earnings (Losses) of Unconsolidated Affiliates. Investments in entities for which the Company does not have the ability to exercise any influence are accounted for under the cost method.
The Company owns a 22.22% interest in an approximately one million square foot retail portfolio (the "Brandywine Portfolio") located in Wilmington, Delaware. Effective January 1, 2013, following certain changes in the financial and operating controls of the joint venture, the Company now accounts for this investment on a consolidated basis.
The 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. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013. 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. These consolidated financial statements should be read in conjunction with the Company's 2012 Annual Report on Form 10-K, as filed with the SEC on February 27, 2013.
Reclassifications
Certain reclassifications have been made to the 2012 financial statements to conform to the 2013 presentation.
Real Estate
The Company reviews its long-lived assets for impairment when there is an event or change in circumstances that indicates that the carrying amount may not be recoverable. The Company records impairment losses and reduces the carrying value of properties when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying cost to fair value, and for properties held-for-sale, the Company reduces its carrying value to the fair value less costs to dispose. During the quarter ended June 30, 2013, the Company determined that the value of the Walnut Hill Plaza, a Core Portfolio property, was impaired as a result of a deterioration in the local economic environment. Accordingly, the Company recorded an impairment charge of $1.5 million, which is included in the statement of income for the nine months ended September 30, 2013. This property is collateral for $23.1 million of non-recourse mortgage debt which matures October 1, 2016. Management does not believe that the values of any of its other properties are impaired as of September 30, 2013.
Recent Accounting Pronouncements
During July 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU 2013-11 requires an entity to present an unrecognized tax benefit relating to a net operating loss carryforward, a similar tax loss or a tax credit carryforward as a reduction to a deferred tax asset except in certain situations. To the extent the net operating loss carry forward, similar tax loss or tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of the tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability. ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's financial condition or results of operations.
8

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
Recent Accounting Pronouncements (continued)
During February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 as of January 1, 2013 and the adoption did not have a material impact on the Company's financial condition or results of operations.

2. | EARNINGS PER COMMON SHARE

Basic earnings per Common Share is computed by dividing net income attributable to Common Shareholders by the weighted average Common Shares outstanding. At September 30, 2013, the Company has unvested LTIP Units (Note 13) which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic earnings per Common Share pursuant to the two-class method.
Diluted earnings per Common Share reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of restricted share unit ("Restricted Share Units") and share option awards issued under the Company's Share Incentive Plans (Note 13). The effect of the assumed conversion of 188 Series A Preferred OP Units into 25,067 Common Shares would be anti-dilutive and are therefore not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2013 and September 30, 2012.
The effect of the conversion of Common OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Common Shares on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share. The conversion of the convertible notes payable (Note 9) is not included in the computation of basic and diluted earnings per share as such conversion, based on the current market price of the Common Shares, would be settled with cash.
The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the periods indicated:
9

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

2. | EARNINGS PER COMMON SHARE (continued)

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
(dollars in thousands, except per share amounts) | 2013 |  | 2012 |  | 2013 |  | 2012
Numerator |  |  |  |  |  |  |
Income from continuing operations | $ | 8,858 |  |  | $ | 5,802 |  |  | $ | 26,033 |  |  | $ | 14,812 |
Less: net income attributable to participating securities | 156 |  |  | 118 |  |  | 460 |  |  | 298 |
Income from continuing operations, net of income attributable to participating securities | 8,702 |  |  | 5,684 |  |  | 25,573 |  |  | 14,514 |
Numerator for basic and diluted earnings per Common Share | $ | 8,702 |  |  | $ | 5,684 |  |  | $ | 25,573 |  |  | $ | 14,514 |
Denominator |  |  |  |  |  |  |  |  |
Weighted average shares for basic earnings per share | 55,460 |  |  | 46,338 |  |  | 54,686 |  |  | 44,447 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |
Employee Restricted Share Units and share options | 358 |  |  | 474 |  |  | 406 |  |  | 437 |
Denominator for diluted earnings per share | 55,818 |  |  | 46,812 |  |  | 55,092 |  |  | 44,884 |
Basic earnings per Common Share from continuing operations attributable to Common Shareholders | $ | 0.16 |  |  | $ | 0.12 |  |  | $ | 0.47 |  |  | $ | 0.33 |
Diluted earnings per Common Share from continuing operations attributable to Common Shareholders | $ | 0.16 |  |  | $ | 0.12 |  |  | $ | 0.47 |  |  | $ | 0.33 |

3. | SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS

During April 2013, the Company completed the total allotted sales pursuant to an at-the-market (“ATM”) equity program with an aggregate offering amount of $125.0 million of gross proceeds from the sale of Common Shares. Under this program, the Company issued a total of 4.9 million Common Shares which generated net proceeds of $123.1 million.
During April 2013, the Company established a new ATM equity program with an additional aggregate offering amount of up to $150.0 million of gross proceeds from the sale of Common Shares. Through September 30, 2013, the Company issued approximately 0.7 million Common Shares under this new ATM which generated gross proceeds of approximately $20.9 million and net proceeds of approximately $20.5 million.
For the nine months ended September 30, 2013, the Company issued a total of 2.8 million Common Shares under the ATM programs, which generated gross proceeds of $77.1 million and net proceeds of $75.8 million.
The net proceeds from these ATM equity programs have been, and will be, used by the Company primarily to fund acquisitions directly in the Core Portfolio and through its capital contributions to the Opportunity Funds.
Noncontrolling interests represent the portion of equity in entities consolidated in the accompanying financial statements that the Company does not own. Such noncontrolling interests are reported on the Consolidated Balance Sheets within equity, separately from shareholders' equity and include third party interests in the Company’s Opportunity Funds and other entities. It also includes interests in the Operating Partnership which represent (i) the limited partners’ 224,134 and 284,097 Common OP Units at September 30, 2013 and December 31, 2012, respectively; (ii) 188 Series A Preferred OP Units at September 30, 2013 and December 31, 2012; and (iii) 368,424 and 168,357 LTIP Units at September 30, 2013 and December 31, 2012, respectively.
10

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

4. | ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS

Acquisitions
2013 Core Portfolio Acquisitions
During March 2013, the Company acquired 664 North Michigan Avenue, an 18,141 square foot retail building underlying a multi-story office and residential condominium in Chicago, Illinois for $86.6 million.
During June 2013, the Company acquired 8-12 East Walton Street, an 8,244 square foot retail property in Chicago, Illinois for $22.5 million.
During July 2013, the Company acquired 3200-3204 M Street, a 7,000 square foot retail property in Washington D.C. for $11.8 million.
The Company expensed $1.6 million of acquisition costs for the nine months ended September 30, 2013 related to the Core Portfolio.
2013 Fund III Acquisitions
Fund III had previously acquired a $23.0 million note receivable at a discounted price of $18.5 million during April 2012. The note receivable, which was scheduled to mature in May 2012, was collateralized by a 79,526 square foot shopping center located in Brooklyn, New York ("Nostrand Place"). The Company commenced foreclosure proceedings, but ultimately agreed to a settlement with the unaffiliated borrower. Pursuant to the settlement, in February 2013, Fund III and the borrower formed a joint venture whereby Fund III contributed its interest in the note for a 99% controlling interest in the joint venture, and the borrower contributed the deed to Nostrand Place in exchange for a 1% interest in the joint venture. As a result, Fund III consolidates its investment in Nostrand Place.
2013 Fund IV Acquisitions
During June 2013, Fund IV acquired a 98% initial interest in 2819 Kennedy Boulevard in a joint venture with an unaffiliated partner, which acquired a 53,680 square foot retail property in North Bergen, New Jersey for $9.0 million.
During June 2013, Fund IV acquired a 99% initial interest in Promenade at Manassas in a joint venture with an unaffiliated partner, which acquired a 265,442 square foot shopping center in Manassas, Virginia for $38.0 million.
During August 2013, Fund IV acquired a 50% initial interest in Paramus Plaza, in a joint venture with an unaffiliated partner, which acquired a 152,118 square foot retail property in Paramus, New Jersey for $18.9 million.
The Company expensed $1.8 million of acquisition costs for the nine months ended September 30, 2013 related to Fund IV.
Purchase Price Allocations
The above acquisitions have been accounted for as business combinations. The purchase prices were allocated to the acquired assets and liabilities based on their estimated fair values at the dates of acquisition. The preliminary measurements of fair value reflected below are subject to change. The Company expects to finalize the valuations and complete the purchase price allocations within one year from the dates of acquisition.
11

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)
Acquisitions (continued)
The following table summarizes the Company's preliminary allocations of the purchase prices of assets acquired and liabilities assumed during 2013 which have yet to be finalized:

(dollars in thousands) | Preliminary Purchase Price Allocations
Land | $ | 47,242 |
Buildings and improvements | 159,045 |
Total consideration | $ | 206,287 |

During 2012, the Company acquired properties and recorded the preliminary allocations of the purchase prices to the assets acquired based on provisional measurements of fair value. During 2013, the Company finalized the allocations of the purchase prices and made certain measurement period adjustments. The following table summarizes the preliminary allocations of the purchase prices of these properties as recorded as of December 31, 2012, and the finalized allocations as adjusted as of September 30, 2013:

(dollars in thousands) | Purchase Price Allocations as Originally Reported | Adjustments | Finalized Purchase Price Allocations
Land | $ | 38,028 |  | $ | 2,819 |  | $ | 40,847 |
Buildings and improvements | 80,997 |  | (1,971 | ) | 79,026 |
Acquisition-related intangible assets (in Acquired lease intangibles, net) | — |  | 11,069 |  | 11,069 |
Acquisition-related intangible liabilities (in Acquired lease intangibles, net) | — |  | (9,672 | ) | (9,672 | )
Below market debt assumed (in Mortgage and other notes payable) | — |  | (2,245 | ) | (2,245 | )
Total consideration | $ | 119,025 |  | $ | — |  | $ | 119,025 |

Dispositions
During May 2013, Fund II sold the storage facility located at its Pelham Manor property for $11.9 million. This sale resulted in a $4.2 million gain.
12

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. ACQUISITION OF REAL ESTATE AND DISCONTINUED OPERATIONS (continued)
Discontinued Operations
The Company reports properties held for sale and properties sold during the periods presented as discontinued operations. The results of operations of discontinued operations are reflected as a separate component within the accompanying Consolidated Statements of Income for all periods presented. As of September 30, 2013, three of the properties within the Opportunity Funds and one property within the Core Portfolio were held for sale.
The combined assets and liabilities and the results of operations of the properties classified as discontinued operations, in each period presented, are summarized as follows:

(dollars in thousands) |  |  |  |  |
BALANCE SHEET |  | September 30, 2013 |  | December 31, 2012
ASSETS |  |  |  |  |
Net real estate |  | $ | 187,954 |  |  | $ | 197,669 |
Cash in escrow |  | 3,450 |  |  | 3,088 |
Rents receivable, net |  | 11,909 |  |  | 12,257 |
Deferred charges, net of amortization |  | 8,435 |  |  | 9,046 |
Acquired lease intangibles, net |  | 3,196 |  |  | 3,399 |
Prepaid expenses and other assets, net |  | 1,559 |  |  | 1,205 |
Total assets of discontinued operations |  | $ | 216,503 |  |  | $ | 226,664 |
LIABILITIES |  |  |  |  |
Mortgage notes payable |  | $ | 121,426 |  |  | $ | 133,213 |
Accounts payable and accrued expenses |  | 3,088 |  |  | 4,997 |
Other liabilities |  | 7,517 |  |  | 7,861 |
Total liabilities of discontinued operations |  | $ | 132,031 |  |  | $ | 146,071 |

| Three Months Ended |  | Nine Months Ended
(dollars in thousands) | September 30, |  | September 30,
STATEMENTS OF INCOME | 2013 |  | 2012 |  | 2013 |  | 2012
Total revenues | $ | 6,439 |  |  | $ | 15,466 |  |  | $ | 20,176 |  |  | $ | 44,623 |
Total expenses | 3,604 |  |  | 13,307 |  |  | 14,076 |  |  | 35,593 |
Operating income | 2,835 |  |  | 2,159 |  |  | 6,100 |  |  | 9,030 |
Gain on sale of property | — |  |  | 5,917 |  |  | 4,191 |  |  | 8,585 |
Income from discontinued operations | 2,835 |  |  | 8,076 |  |  | 10,291 |  |  | 17,615 |
Income from discontinued operations attributable to noncontrolling interests | (2,208 | ) |  | (6,297 | ) |  | (8,459 | ) |  | (13,998 | )
Income from discontinued operations attributable to Common Shareholders | $ | 627 |  |  | $ | 1,779 |  |  | $ | 1,832 |  |  | $ | 3,617 |

13

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

5. | INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Core Portfolio
The Company owns a 49% interest in a 311,000 square foot shopping center located in White Plains, New York ("Crossroads"), a 50% interest in an approximately 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the "Georgetown Portfolio") and a 22.22% interest in an approximately 20,000 square foot retail property located in Wilmington, Delaware ("Route 202 Shopping Center"). These investments are accounted for under the equity method.
Opportunity Funds
RCP Venture
The Opportunity Funds, together with two unaffiliated partners formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers and, in some instances, the retailers' operating company. The RCP Venture is neither a single entity nor a specific investment and the Company has no control or rights with respect to the formation and operation of these investments. The Company has made these investments through its subsidiaries, Mervyns I, Mervyns II and Fund II, (together the "Acadia Investors"), all on a non-recourse basis. Through September 30, 2013, the Acadia Investors have made investments in Mervyns Department Stores ("Mervyns") and Albertsons including additional investments in locations that are separate from these original investments ("Add-On Investments"). Additionally, they have invested in Shopko, Marsh and Rex Stores Corporation (collectively "Other RCP Investments"). The Company accounts for its investments in Mervyns and Albertsons on the equity method as it has the ability to exercise significant influence, but does not have any rights with respect to financial or operating control. The Company accounts for its investments in its Add-On Investments and Other RCP Investments on the cost method as it does not have any influence over such entities' operating and financial policies nor any rights with respect to the control and operation of these entities.
The following table summarizes activity related to the RCP Venture investments from inception through September 30, 2013:

(dollars in thousands) |  | Investment Group Share |  | Operating Partnership Share
Investment | Year Acquired | Invested Capital and Advances |  | Distributions |  | Invested Capital and Advances |  | Distributions
Mervyns | 2004 | $ | 26,058 |  |  | $ | 45,966 |  |  | $ | 4,901 |  |  | $ | 11,251 |
Mervyns Add-On investments | 2005/2008 | 7,547 |  |  | 5,334 |  |  | 1,252 |  |  | 1,193 |
Albertsons | 2006 | 20,717 |  |  | 81,594 |  |  | 4,239 |  |  | 16,318 |
Albertsons Add-On investments | 2006/2007 | 2,416 |  |  | 4,864 |  |  | 388 |  |  | 972 |
Shopko | 2006 | 1,108 |  |  | 2,460 |  |  | 222 |  |  | 492 |
Marsh and Add-On investments | 2006/2008 | 2,667 |  |  | 2,639 |  |  | 533 |  |  | 528 |
Rex Stores | 2007 | 2,701 |  |  | 1,956 |  |  | 535 |  |  | 392 |
|  | $ | 63,214 |  |  | $ | 144,813 |  |  | $ | 12,070 |  |  | $ | 31,146 |

Other Opportunity Fund Investments
During the third quarter of 2013, Fund II, through a joint venture ("Albee Tower I Owners") with an unaffiliated entity, executed an agreement to acquire the development rights for the residential components of Fund II's City Point project. Fund II contributed $1.1 million of cash and $6.8 million of prepaid ground rent and previously incurred construction costs into this joint venture.
The unaffiliated partners for Fund II's investment in Albee Tower I Owners, Fund III's investments in Lincoln Road, Parkway Crossing, Arundel Plaza and the White City Shopping Center as well as Fund IV's investments in Lincoln Road, 1701 Belmont Avenue, 2819 Kennedy Boulevard and Promenade at Manassas maintain control over these entities. The Company accounts for these investments under the equity method as it has the ability to exercise significant influence, but does not have any rights with respect to financial or operating control.
14

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

5. | INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (continued)

Self-Storage Management, a Fund III investment, was determined to be a variable interest entity. Management has evaluated the applicability of ASC Topic 810 to this joint venture and determined that the Company is not the primary beneficiary and, therefore, consolidation of this venture is not required. The Company accounts for this investment using the equity method of accounting.
Summary of Investments in Unconsolidated Affiliates
The following Combined and Condensed Balance Sheets and Statements of Income, summarize the financial information of the Company’s investments in unconsolidated affiliates:

(dollars in thousands) | September 30, 2013 |  | December 31, 2012
Combined and Condensed Balance Sheets |  |  |
Assets |  |  |
Rental property, net | $ | 365,399 |  |  | $ | 441,611 |
Real estate under development | 2,224 |  |  | — |
Investment in unconsolidated affiliates | 63,745 |  |  | 93,923 |
Other assets | 40,908 |  |  | 39,035 |
Total assets | $ | 472,276 |  |  | $ | 574,569 |
Liabilities and partners’ equity |  |  |  |  |
Mortgage notes payable | $ | 241,907 |  |  | $ | 326,296 |
Other liabilities | 20,718 |  |  | 24,267 |
Partners’ equity | 209,651 |  |  | 224,006 |
Total liabilities and partners’ equity | $ | 472,276 |  |  | $ | 574,569 |
Company’s investment in and advances to unconsolidated affiliates | $ | 199,113 |  |  | $ | 221,904 |
Company's share of distributions in excess of income from, and investments in, unconsolidated affiliates | $ | (12,426 | ) |  | $ | (22,707 | )

| Three Months Ended |  | Nine Months Ended
(dollars in thousands) | September 30, 2013 |  | September 30, 2012 |  | September 30, 2013 |  | September 30, 2012
Combined and Condensed Statements of Income |  |  |  |  |  |  |
Total revenues | $ | 13,731 |  |  | $ | 11,903 |  |  | $ | 35,577 |  |  | $ | 36,121 |
Operating and other expenses | (4,139 | ) |  | (4,977 | ) |  | (13,117 | ) |  | (13,793 | )
Interest and other finance expense | (2,359 | ) |  | (4,603 | ) |  | (6,446 | ) |  | (13,854 | )
Equity in earnings of unconsolidated affiliates | 1,284 |  |  | 1,398 |  |  | 7,154 |  |  | 6,244 |
Depreciation and amortization | (3,200 | ) |  | (2,573 | ) |  | (7,888 | ) |  | (7,216 | )
Gain on sale of property | — |  |  | — |  |  | — |  |  | 3,402 |
Net income | $ | 5,317 |  |  | $ | 1,148 |  |  | $ | 15,280 |  |  | $ | 10,904 |
Company’s share of net income (losses) | $ | 4,307 |  |  | $ | (2,440 | ) |  | $ | 7,568 |  |  | $ | 2,291 |
Amortization of excess investment | (98 | ) |  | (98 | ) |  | (294 | ) |  | (294 | )
Company’s equity in earnings (losses) of unconsolidated affiliates | $ | 4,209 |  |  | $ | (2,538 | ) |  | $ | 7,274 |  |  | $ | 1,997 |

15

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

6. | NOTES RECEIVABLE

As of September 30, 2013, the Company’s notes receivable, net, aggregated $95.4 million, and were collateralized either by the underlying properties or the borrowers' ownership interests in the entities that own the properties and/or by the borrowers' personal guarantee subject, as applicable, to senior liens, as follows:

(dollars in thousands) |  |  |  |
Note description | Effective interest rate (1) | First Priority liens | Net Carrying Amounts of Notes Receivable as of September 30, 2013 |  | Net Carrying Amounts of Notes Receivable as of December 31, 2012 | Maturity date | Extension Options
First Mortgage Loan | 12.0% | $ | — |  | $ | 12,204 |  |  | $ | 12,333 |  | 12/1/2013 | — |
First Mortgage Loan | 6.0% | — |  | — |  |  | 10,250 |  | 12/31/2013 | — |
First Mortgage Loan | 8.0% | — |  | 8,000 |  |  | 8,000 |  | 12/31/2013 | — |
Mezzanine Loan 2 | 10.0% | 89,566 |  | 9,089 |  |  | 9,089 |  | 12/31/2013 | — |
First Mortgage Loan | 11.0% | — |  | 25,000 |  |  | 25,000 |  | 1/1/2014 | 1 x 6 months |
Zero Coupon Loan 3 | 24.0% | 166,200 |  | 4,314 |  |  | 3,961 |  | 1/3/2016 | — |
Mezzanine Loan | 15.0% | — |  | 30,879 |  |  | 30,879 |  | 11/9/2020 | — |
Mezzanine Loan 4 | 15.0% | 16,668 |  | 3,834 |  |  | 3,834 |  | Upon Capital Event | — |
First Mortgage Loan | 5.3% | — |  | — |  |  | 18,500 |  | Demand | — |
Construction Loan | 20.5% | — |  | — |  |  | 5,400 |  | 12/31/2012 | — |
Individually less than 3% 5 | 11.6% to 17.5% | 37,623 |  | 2,032 |  |  | 2,032 |  | 12/31/13 to Capital Event | — |
Total |  |  | $ | 95,352 |  |  | $ | 129,278 |  |  |  |

Notes:
(1) The effective interest rate includes origination and exit fees.
(2) Comprised of three cross-collateralized loans from one borrower, which are non-performing
(3) The principal balance for this accrual only loan is increased by the interest accrued
(4) Non-performing loan
(5) Consists of three loans two of which are non-performing, with an aggregate face value of $5.7 million, of which $3.9 million has been reserved
During January 2013, Fund III received a payment of $2.5 million, representing the full principal and interest on a note that had been previously written off.
During February 2013, Fund III, in conjunction with its acquisition of Nostrand Place (Note 4), received repayment on $13.0 million of its first mortgage loan of $18.5 million and contributed the remaining unliquidated balance to a joint venture.
During March 2013, the Company received a payment of $5.4 million, representing full payment on a construction loan.
During September 2013, the Company received a payment of $10.3 million, representing full payment of principal and accrued interest on a first mortgage loan that was scheduled to mature on December 31, 2013.
The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company's loan in relation to other debt secured by the collateral and the prospects of the borrower. As of September 30, 2013, the Company held six non-performing notes aggregating $18.6 million for which payment was delinquent. Based primarily on the indicators noted above, the Company has established a reserve of $3.9 million as of September 30, 2013 related to these notes. The following table reconciles the allowance for notes receivable from December 31, 2012 to September 30, 2013:
16

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

6. | NOTES RECEIVABLE (continued)

(dollars in thousands) | Allowance for Notes Receivable
Balance at December 31, 2012 | $ | 3,681 |
Additional reserves | 238 |
Recoveries | — |
Charge-offs and reclassifications | — |
Balance at September 30, 2013 | $ | 3,919 |

7. | DERIVATIVE FINANCIAL INSTRUMENTS

As of September 30, 2013, the Company's derivative financial instruments consisted of 11 interest rate swaps with an aggregate notional value of $180.5 million, which effectively fix LIBOR at rates ranging from 0.52% to 3.77% and mature between May 2015 and April 2023. The Company also has four derivative financial instruments with a notional value of $141.0 million which cap LIBOR at rates ranging from 3.0% to 4.3% and mature between July 2015 and April 2018. The fair value of these derivative instruments, included in other liabilities in the Consolidated Balance Sheets, totaled $2.5 million and $4.4 million at September 30, 2013 and December 31, 2012, respectively. The fair value of these derivative instruments, included in prepaid expenses and other assets in the Consolidated Balance Sheets, totaled $1.7 million at September 30, 2013. The notional value does not represent exposure to credit, interest rate, or market risks.
These derivative instruments have been designated as cash flow hedges and hedge the future cash outflows of variable-rate interest payments on mortgage debt. Such instruments are reported at the fair value reflected above. As of September 30, 2013 and December 31, 2012, unrealized losses totaling $0.7 million and $4.3 million, respectively, were reflected in accumulated other comprehensive loss on the consolidated balance sheets.
As of September 30, 2013 and December 31, 2012, no derivatives were designated as fair value hedges, hedges of net investments in foreign operations or considered to be ineffective. Additionally, the Company does not use derivatives for trading or speculative purposes.

8. | MORTGAGE AND OTHER NOTES PAYABLE

The Company completed the following transactions related to mortgage and other notes payable and credit facilities during the nine months ended September 30, 2013:
During January 2013, the Company closed on a new $150.0 million unsecured credit facility, replacing the $64.5 million secured credit facility that had matured. The new facility bears interest at a spread which varies based on the ratio of total debt to total asset value of the Company ranging from LIBOR plus 155 basis points (<45%) to a maximum of LIBOR plus 220 basis points (>55%) depending on the level of leverage. There is also an unused credit facility fee of 0.35% if the total outstanding principal is less than or equal to 50% of the aggregate commitments and 0.25% if it is more. This facility matures on January 3, 2016 and has a one-year extension option. During the nine months ended September 30, 2013, the Company borrowed $45.0 million on this facility, all of which has been repaid. As of September 30, 2013, there was no balance outstanding under this credit facility.
During January 2013, the Company closed on a $16.5 million loan collateralized by a property. The loan bears interest at LIBOR plus 190 basis points and matures on January 23, 2023.
During February 2013, the Company closed on a $13.0 million loan collateralized by a property. The loan bears interest at LIBOR plus 265 basis points and matures on February 1, 2016.
During March 2013, the Company refinanced a $28.9 million loan collateralized by a property, bearing interest at LIBOR plus 600 basis points with a new $29.5 million loan. The new loan bears interest at LIBOR plus 250 basis points and matures on April 1, 2018.
17

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

8. | MORTGAGE AND OTHER NOTES PAYABLE (continued)

During March 2013, the Company modified a $50.0 million construction loan collateralized by a property. The modification converted the construction loan, on which no previous balance was drawn, into a first mortgage loan of $20.0 million and increased the interest rate from LIBOR plus 330 basis points to LIBOR plus 500 basis points. In addition, the Company modified a separate $20.0 million loan collateralized by this property. The previous loan bore interest at LIBOR plus 250 basis points and was scheduled to mature during August 2013. The modification extended the maturity date to August 23, 2015 and adjusted the interest rate to LIBOR plus 300 basis points until August 2013, LIBOR plus 350 basis points until August 2014 and LIBOR plus 400 basis points thereafter.
During April 2013, the Company closed on a $8.6 million loan collateralized by a property. The loan bears interest at LIBOR plus 175 basis points and matures on April 3, 2023.
During June 2013, the Company closed on a $52.5 million loan collateralized by a property. The loan bears interest at LIBOR plus 165 basis points, matures on June 28, 2018, and has a five-year extension option. As of September 30, 2013, no proceeds have been funded under this loan.
During June 2013, the Company closed on a $4.6 million loan collateralized by a property. The loan bears interest at LIBOR plus 195 basis points, matures on June 1, 2014, and has a one-year extension option.
During August 2013, the Company completed the modification of a loan collateralized by a property. The previous outstanding balance on the loan was $73.0 million at the time of the modification and included two tranches which bore interest at a blended rate of LIBOR plus 203 basis points. The modified loan increased the principal balance to $85.0 million and adjusted the interest rate to LIBOR plus 165 points. The maturity date of October 26, 2015 remained the same.
During 2012, the U.S. Citizenship and Immigration Services ("USCIS") approved the City Point project's application for $200.0 million of construction financing under the U.S.'s Immigrant Investor Program, commonly known as "EB-5." Upon such approval, the USCIS has released funds from time to time into a restricted cash account. As of September 30, 2013, $197.0 million of funds have been released into this restricted cash account and $62.6 million have been drawn to fund construction activities, with $134.4 million remaining in the restricted cash account.

9. | CONVERTIBLE NOTES PAYABLE

In December 2006 and January 2007, the Company issued convertible notes totaling $115.0 million with a fixed interest rate of 3.75% due in 2026 (the "Convertible Notes"). The Convertible Notes were issued at par and require interest payments semi-annually in arrears on June 15 th and December 15 th of each year. The Convertible Notes are unsecured obligations and rank equally with all other unsecured and unsubordinated indebtedness. The Convertible Notes have an effective interest rate of 6.03% after giving effect to the accounting treatment required by ASC Topic 470-20, "Debt with Conversion and Other Options." Holders of the Convertible Notes may require the Company to repurchase the Convertible Notes at par on December 15, 2016 and December 15, 2021. During the nine months ended September 30, 2013, the Company re-purchased $0.6 million of Convertible Notes. Through September 30, 2013, the Company had re-purchased $114.6 million in principal amount of its Convertible Notes, and the remaining outstanding balance is $0.4 million.
As of December 31, 2011, all loan costs associated with the issuance had been expensed and there is no remaining net carrying amount of the equity component. The if-converted value of the Convertible Notes does not exceed their aggregate principal amount as of September 30, 2013 and there are no derivative transactions that were entered into in connection with the issuance of the Convertible Notes.
18

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. FAIR VALUE MEASUREMENTS
The FASB's fair value measurements and disclosure guidance requires the valuation of certain of the Company's financial assets and liabilities, based on a three-level fair value hierarchy. Market value assumptions obtained from sources independent of the Company are observable inputs that are classified within Levels 1 and 2 of the hierarchy, and the Company's own assumptions about market value assumptions are unobservable inputs classified within Level 3 of the hierarchy.
The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2013:

(dollars in thousands) | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |
Derivative financial instruments (Note 7) | $ | — |  |  | $ | 1,684 |  |  | $ | — |
Liabilities |  |  |  |  |
Derivative financial instruments (Note 7) | $ | — |  |  | $ | 2,497 |  |  | $ | — |

In addition to items that are measured at fair value on a recurring basis, the Company also has assets and liabilities on its balance sheet that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured at fair value on a recurring basis, they are not included in the table above. Assets and liabilities that are measured at fair value on a nonrecurring basis include assets acquired and liabilities assumed in business combinations (Note 4).
During the quarter ended June 30, 2013, the Company determined that the value of the Walnut Hill Plaza was impaired and recorded an impairment loss of $1.5 million (Note 1). The Company estimated the fair value by using projected future cash flows, which it determined were not sufficient to recover the property's net book value. The inputs used to determine this fair value are classified within Level 3 of the hierarchy.
Financial Instruments
Certain of the Company’s assets and liabilities meet the definition of financial instruments. Except as disclosed below, the carrying amounts of these financial instruments approximate their fair values.
The Company has determined the estimated fair values of the following financial instruments by discounting future cash flows utilizing a discount rate equivalent to the rate at which similar financial instruments would be originated at the reporting date:

(dollars in thousands) | September 30, 2013 |  | December 31, 2012
| Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
Mortgage, Convertible Notes and Other Notes Payable | $ | 1,004,555 |  |  | $ | 1,027,131 |  |  | $ | 603,973 |  |  | $ | 611,280 |

11. | RELATED PARTY TRANSACTIONS

The Company earned property management fees, construction, legal and leasing fees from its investments in unconsolidated affiliates totaling $0.02 million and $0.2 million for the three months ended September 30, 2013 and 2012, respectively, and $0.06 million and $0.6 million for the nine months ended September 30, 2013 and 2012, respectively.
Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of $25,000 for the three months ended September 30, 2013 and 2012, respectively and $75,000 for the nine months ended September 30, 2013 and 2012, respectively.
19

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12. | SEGMENT REPORTING

The Company has three reportable segments: Core Portfolio, Opportunity Funds and Notes Receivable. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring items. Investments in the Core Portfolio are typically held long-term. Given the contemplated finite life of the Opportunity Funds, these investments are typically held for shorter terms. Fees earned by the Company as the general partner/managing member of the Opportunity Funds are eliminated in the Company's consolidated financial statements. The following tables set forth certain segment information for the Company, reclassified for discontinued operations, as of and for the three and nine months ended September 30, 2013 and 2012 and does not include unconsolidated affiliates:

| Three Months Ended September 30, 2013
(dollars in thousands) | Core Portfolio | Opportunity Funds | Notes Receivable | Total
Revenues | $ | 28,115 |  | $ | 9,234 |  | $ | 2,969 |  | $ | 40,318 |
Property and other operating expenses and real estate taxes | 7,723 |  | 4,009 |  | — |  | 11,732 |
General and administrative | 4,954 |  | 381 |  | — |  | 5,335 |
Income before depreciation and amortization and interest and other finance expense | $ | 15,438 |  | $ | 4,844 |  | $ | 2,969 |  | $ | 23,251 |
Depreciation and amortization | $ | 7,890 |  | $ | 2,560 |  | $ | — |  | $ | 10,450 |
Interest and other finance expense | $ | 6,683 |  | $ | 3,834 |  | $ | — |  | $ | 10,517 |
Real estate at cost | $ | 998,711 |  | $ | 684,713 |  | $ | — |  | $ | 1,683,424 |
Total assets | $ | 993,472 |  | $ | 1,260,544 |  | $ | 95,352 |  | $ | 2,349,368 |
Expenditures for redevelopment and improvements | $ | 5,246 |  | $ | 30,736 |  | $ | — |  | $ | 35,982 |
Acquisition of real estate | $ | 11,800 |  | $ | 19,175 |  | $ | — |  | $ | 30,975 |
Reconciliation to net income and net income attributable to Common Shareholders |
Net property income before depreciation and amortization and interest and other finance expense | $ | 23,251 |
Depreciation and amortization | (10,450 | )
Equity in earnings of unconsolidated affiliates | 4,209 |
Interest and other finance expense | (10,517 | )
Income tax provision | (186 | )
Income from discontinued operations | 2,835 |
Net income | 9,142 |
Net loss attributable to noncontrolling interests | 343 |
Net income attributable to Common Shareholders | $ | 9,485 |

20

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12. | SEGMENT REPORTING (continued)

| Three Months Ended September 30, 2012
(dollars in thousands) | Core Portfolio | Opportunity Funds | Notes Receivable | Total
Revenues | $ | 17,794 |  | $ | 9,116 |  | $ | 1,921 |  | $ | 28,831 |
Property and other operating expenses and real estate taxes | 5,687 |  | 3,153 |  | — |  | 8,840 |
General and administrative | 4,948 |  | 569 |  | — |  | 5,517 |
Income before depreciation and amortization and interest and other finance expense | $ | 7,159 |  | $ | 5,394 |  | $ | 1,921 |  | $ | 14,474 |
Depreciation and amortization | $ | 4,379 |  | $ | 2,997 |  | $ | — |  | $ | 7,376 |
Interest and other finance expense | $ | 4,184 |  | $ | 1,901 |  | $ | — |  | $ | 6,085 |
Real estate at cost | $ | 608,971 |  | $ | 554,552 |  | $ | — |  | $ | 1,163,523 |
Total assets | $ | 605,694 |  | $ | 1,183,430 |  | $ | 80,766 |  | $ | 1,869,890 |
Expenditures for redevelopment and improvements | $ | (915 | ) | $ | 15,024 |  | $ | — |  | $ | 14,109 |
Acquisition of real estate | $ | 11,492 |  | $ | 14,601 |  | $ | — |  | $ | 26,093 |
Reconciliation to net income and net income attributable to Common Shareholders |
Net property income before depreciation and amortization and interest and other finance expense | $ | 14,474 |
Depreciation and amortization | (7,376 | )
Equity in losses of unconsolidated affiliates | (2,538 | )
Interest and other finance expense | (6,085 | )
Income tax benefit | 104 |
Income from discontinued operations | 2,159 |
Gain on sale of properties | 5,917 |
Net income | 6,655 |
Net loss attributable to noncontrolling interests | 926 |
Net income attributable to Common Shareholders | $ | 7,581 |

21

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12. | SEGMENT REPORTING (continued)

| Nine Months Ended September 30, 2013
(dollars in thousands) | Core Portfolio | Opportunity Funds | Notes Receivable | Total
Revenues | $ | 82,252 |  | $ | 30,374 |  | $ | 9,265 |  | $ | 121,891 |
Property and other operating expenses and real estate taxes | 21,098 |  | 10,771 |  | — |  | 31,869 |
General and administrative | 16,042 |  | 1,219 |  | — |  | 17,261 |
Income before depreciation and amortization and interest and other finance expense | $ | 45,112 |  | $ | 18,384 |  | $ | 9,265 |  | $ | 72,761 |
Depreciation and amortization | $ | 21,187 |  | $ | 8,091 |  | $ | — |  | $ | 29,278 |
Interest and other finance expense | $ | 19,169 |  | $ | 10,393 |  | $ | — |  | $ | 29,562 |
Real estate at cost | $ | 998,711 |  | $ | 684,713 |  | $ | — |  | $ | 1,683,424 |
Total assets | $ | 993,472 |  | $ | 1,260,544 |  | $ | 95,352 |  | $ | 2,349,368 |
Expenditures for redevelopment and improvements | $ | 8,957 |  | $ | 70,592 |  | $ | — |  | $ | 79,549 |
Acquisition of real estate | $ | 120,900 |  | $ | 19,175 |  | $ | — |  | $ | 140,075 |
Reconciliation to net income and net income attributable to Common Shareholders |  |
Net property income before depreciation and amortization and interest and other finance expense | $ | 72,761 |
Depreciation and amortization | (29,278 | )
Equity in earnings of unconsolidated affiliates | 7,274 |
Interest and other finance expense | (29,562 | )
Income tax provision | (53 | )
Impairment of asset | (1,500 | )
Income from discontinued operations | 6,100 |
Gain on sale of properties | 4,191 |
Net income | 29,933 |
Net income attributable to noncontrolling interests | (2,068 | )
Net income attributable to Common Shareholders | $ | 27,865 |

22

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12. | SEGMENT REPORTING (continued)

| Nine Months Ended September 30, 2012
(dollars in thousands) | Core Portfolio | Opportunity Funds | Notes Receivable | Total
Revenues | $ | 50,166 |  | $ | 24,740 |  | $ | 6,127 |  | $ | 81,033 |
Property and other operating expenses and real estate taxes | 14,960 |  | 10,054 |  | — |  | 25,014 |
General and administrative | 15,200 |  | 1,436 |  | — |  | 16,636 |
Income before depreciation and amortization and interest and other finance expense | $ | 20,006 |  | $ | 13,250 |  | $ | 6,127 |  | $ | 39,383 |
Depreciation and amortization | $ | 12,016 |  | $ | 8,655 |  | $ | — |  | $ | 20,671 |
Interest and other finance expense | $ | 11,352 |  | $ | 5,195 |  | $ | — |  | $ | 16,547 |
Real estate at cost | $ | 608,971 |  | $ | 554,552 |  | $ | — |  | $ | 1,163,523 |
Total assets | $ | 605,694 |  | $ | 1,183,430 |  | $ | 80,766 |  | $ | 1,869,890 |
Expenditures for redevelopment and improvements | $ | 13,333 |  | $ | 42,484 |  | $ | — |  | $ | 55,817 |
Acquisition of real estate | $ | 78,370 |  | $ | 58,838 |  | $ | — |  | $ | 137,208 |
Reconciliation to net income and net income attributable to Common Shareholders |  |
Net property income before depreciation and amortization and interest and other finance expense | $ | 39,383 |
Depreciation and amortization | (20,671 | )
Equity in earnings of unconsolidated affiliates | 1,997 |
Interest and other finance expense | (16,547 | )
Income tax provision | (1,125 | )
Income from discontinued operations | 9,030 |
Gain on sale of properties | 8,585 |
Net income | 20,652 |
Net income attributable to noncontrolling interests | (2,223 | )
Net income attributable to Common Shareholders | $ | 18,429 |

13. | LONG-TERM INCENTIVE COMPENSATION

On February 22, 2013, the Company issued a total of 284,447 LTIP Units and 590 Restricted Share Units to officers of the Company and 11,532 Restricted Share Units to other employees of the Company pursuant to its Amended and Restated 2006 Share Incentive Plan (the "Share Incentive Plan"). Vesting with respect to these awards is generally recognized ratably over the five annual anniversaries following the issuance date. Vesting with respect to 16% of the awards issued to officers is also generally subject to achieving certain Company performance measures. Unvested LTIP Units provide for non-forfeitable rights to dividend equivalent payments (Note 2).
These awards were measured at their fair value as if they were vested on the grant date. Fair value was established as the market price of the Company's Common Shares as of the close of trading on the day preceding the grant date. The total value of the above Restricted Share Units and LTIP Units as of their respective grant dates was $7.9 million. Compensation expense of $0.4 million and $1.2 million has been recognized in the accompanying consolidated statements of income related to these awards for the three and nine months ended September 30, 2013, respectively.
Total long-term incentive compensation expense, including the expense related to the above-mentioned plans, was $1.3 million and $0.9 million for the three months ended September 30, 2013 and 2012, respectively and $3.8 million and $2.7 million for the nine months ended September 30, 2013 and 2012, respectively.
23

ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

13. | LONG-TERM INCENTIVE COMPENSATION (continued)

In 2009, the Company adopted the Long Term Investment Alignment Program (the "Program") pursuant to which the Company may award units primarily to senior executives which would entitle them to receive up to 25% of any future Fund III Promote when and if such Promote is ultimately realized. The Company has awarded all of the units under the Program and these units were determined to have no value at issuance or as of September 30, 2013. In accordance with ASC Topic 718, "Compensation - Stock Compensation," compensation relating to these awards will be recorded based on the change in the estimated fair value at each reporting period.
14. SUBSEQUENT EVENTS
During October 2013, Fund IV completed the acquisition of 1151 Third Avenue, located in Manhattan, New York, for a purchase price of $18.0 million.
During October 2013, Fund IV completed the acquisition of Lake Montclair, located in Dumfries, Virginia, for a purchase price of $19.3 million.
On November 4, 2013, the Board of Trustees declared a cash dividend for the quarter ended December 31, 2013 of $0.23 per Common Share, to be paid on January 15, 2014 to holders of record as of December 31, 2013.
24

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is based on our consolidated financial statements as of September 30, 2013 and 2012 and for each of the three and nine months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto ("Notes to Consolidated Financial Statements").
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements. Such factors are set forth under the heading "Item 1A. Risk Factors" in our Form 10-K for the year ended December 31, 2012 (our "2012 Form 10-K") and include, among others, the following: general economic and business conditions, including the current post-recessionary period, which will, among other things, affect demand for rental space, the availability and creditworthiness of prospective tenants, lease rents and the availability of financing; adverse changes in our real estate markets, including, among other things, competition with other companies; risks of real estate development, acquisition and investment; risks related to our use of leverage; demands placed on our resources due to the growth of our business; risks related to operating through a partnership structure; our limited control over joint venture investments; the risk of loss of key members of management; uninsured losses; REIT distribution requirements and ownership limitations; concentration of ownership by certain institutional investors; governmental actions and initiatives; and environmental/safety requirements. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-Q.
OVERVIEW
Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns. We focus on the following fundamentals to achieve this objective:

• | Own and operate a Core Portfolio of high-quality retail properties located primarily in high-barrier-to-entry, supply constrained, densely-populated metropolitan areas and create value through accretive redevelopment and re-anchoring activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the industry asset class.

• | Generate additional external growth through an opportunistic yet disciplined acquisition program through our Opportunity Funds. We target transactions with high inherent opportunity for the creation of additional value through:

◦ | value-add investments in high-quality urban and/or street retail properties with re-tenanting or repositioning opportunities,

◦ | opportunistic acquisitions of well-located real estate anchored by distressed retailers or by motivated sellers and

◦ | opportunistic purchases of debt which may include restructuring.

These may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets.

• | Maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth.

As of September 30, 2013, we operated 106 properties, which we own or have an ownership interest in, within our Core Portfolio and Opportunity Funds. These properties primarily consist of urban/street retail, dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component. The properties we operate are located primarily along the East Coast and in Chicago.

• | Core Portfolio

◦ | Our Core Portfolio consists of those properties we either 100% own, or partially own in joint ventures, through the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity

25

Funds. There are 74 properties in our Core Portfolio totaling 4.9 million square feet. As of September 30, 2013, the Core Portfolio physical occupancy was 93.7% and leased occupancy, which includes executed leases for which rent has not yet commenced, was 95.7%.

• | Opportunity Funds

◦ | Fund I has three properties totaling 0.1 million square feet.

◦ | Fund II has four properties totaling 0.3 million square feet, two of which are operating, one of which is under construction, and one of which is in the design phase.

◦ | Fund III has 17 properties totaling 1.7 million square feet, 12 of which are operating and five of which are in various stages of redevelopment.

◦ | Fund IV has eight properties totaling 0.6 million square feet, seven of which are operating and one of which is in the design phase.

The majority of our operating income is derived from rental revenues from properties, including recoveries of operating expenses from tenants, offset by operating and overhead expenses. As our RCP Venture invests in operating companies, we consider these investments to be private-equity style, as opposed to solely real estate, investments. Since these are not generally traditional investments in operating rental real estate but investments in operating businesses, the Operating Partnership principally invests in these through a taxable REIT subsidiary ("TRS").
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2012 Form 10-K.
RESULTS OF OPERATIONS
A discussion of the significant variances and primary factors contributing thereto within the results of operations are addressed below. Where there were no significant variances from period to period, the information in the following tables is presented without further discussion:
Comparison of the three months ended September 30, 2013 ("2013") to the three months ended September 30, 2012 ("2012")

(dollars in millions) | 2013 |  | 2012
Revenues | Core Portfolio |  | Opportunity Funds |  | Notes Receivable |  | Core Portfolio |  | Opportunity Funds |  | Notes Receivable
Rental income | $ | 23.0 |  |  | $ | 6.9 |  |  | $ | — |  |  | $ | 14.3 |  |  | $ | 7.4 |  |  | $ | — |
Interest income | — |  |  | — |  |  | 3.0 |  |  | — |  |  | — |  |  | 1.9 |
Expense reimbursements | 5.1 |  |  | 2.2 |  |  | — |  |  | 3.2 |  |  | 1.4 |  |  | — |
Other | — |  |  | 0.1 |  |  | — |  |  | 0.3 |  |  | 0.3 |  |  | — |
Total revenues | $ | 28.1 |  |  | $ | 9.2 |  |  | $ | 3.0 |  |  | $ | 17.8 |  |  | $ | 9.1 |  |  | $ | 1.9 |

Rental income in the Core Portfolio increased $8.7 million primarily as a result of additional rents of (i) $4.0 million following the consolidation of our Brandywine investment formerly presented under the equity method ("Consolidation of Brandywine"), (ii) $2.6 million following the acquisitions of 330 River Street, 340 River Street, 28 Jericho Turnpike, a portfolio of Chicago street retail properties, 930 Rush Street, 83 Spring Street, Rhode Island Place, 181 Main Street, 1739-53 Connecticut Avenue, 1801-03 Connecticut Avenue, and 639 West Diversey ("2012 Core Acquisitions"), and (iii) $1.8 million following the acquisitions of 664 North Michigan, 8-12 East Walton, and 3200-3204 M Street ("2013 Core Acquisitions").
26

The increase in interest income was primarily due to the origination of two notes during December 2012 partially offset by the repayment of three notes during 2012.
Expense Reimbursements in the Core Portfolio increased $1.9 million primarily as a result of $0.9 million from the 2013 and 2012 Core Acquisitions, and $0.8 million from the Consolidation of Brandywine.

(dollars in millions) | 2013 |  | 2012
Operating Expenses | Core Portfolio |  | Opportunity Funds |  | Notes Receivable |  | Core Portfolio |  | Opportunity Funds |  | Notes Receivable
Property operating | $ | 3.5 |  |  | $ | 1.6 |  |  | $ | — |  |  | $ | 2.6 |  |  | $ | 1.3 |  |  | $ | — |
Other operating | 0.5 |  |  | 0.3 |  |  | — |  |  | 0.4 |  |  | 0.2 |  |  | — |
Real estate taxes | 3.7 |  |  | 2.1 |  |  | — |  |  | 2.7 |  |  | 1.6 |  |  | — |
General and administrative | 4.9 |  |  | 0.4 |  |  | — |  |  | 4.9 |  |  | 0.6 |  |  | — |
Depreciation and amortization | 7.9 |  |  | 2.6 |  |  | — |  |  | 4.4 |  |  | 3.0 |  |  | — |
Total operating expenses | $ | 20.5 |  |  | $ | 7.0 |  |  | $ | — |  |  | $ | 15.0 |  |  | $ | 6.7 |  |  | $ | — |

Property operating expenses in the Core Portfolio increased $0.9 million primarily as a result of the Consolidation of Brandywine.
Real estate taxes in the Core Portfolio increased $1.0 million primarily as a result of $0.6 million from the 2013 and 2012 Core Acquisitions and $0.3 million from the Consolidation of Brandywine.
Depreciation and amortization in the Core Portfolio increased $3.5 million primarily as a result of $2.2 million from the 2013 and 2012 Core Acquisitions and $0.9 million from the Consolidation of Brandywine.

(dollars in millions) | 2013 |  | 2012
Other | Core Portfolio |  | Opportunity Funds |  | Notes Receivable |  | Core Portfolio |  | Opportunity Funds |  | Notes Receivable
Equity in earnings (losses) of unconsolidated affiliates | $ | (0.1 | ) |  | $ | 4.3 |  |  | $ | — |  |  | $ | (0.1 | ) |  | $ | (2.6 | ) |  | $ | — |
Interest and other finance expense | (6.7 | ) |  | (3.8 | ) |  | — |  |  | (4.2 | ) |  | (1.9 | ) |  | — |
Income tax benefit (provision) | (0.1 | ) |  | (0.1 | ) |  | — |  |  | (0.1 | ) |  | 0.2 |  |  | — |
Income from discontinued operations | 0.2 |  |  | 2.6 |  |  | — |  |  | 0.1 |  |  | 8.0 |  |  | — |
Net (income) loss attributable to noncontrolling interests - |  |  |  |  |  |  |  |  |  |  |
- Continuing operations | — |  |  | 2.6 |  |  | — |  |  | — |  |  | 7.2 |  |  | — |
- Discontinued operations | (0.1 | ) |  | (2.1 | ) |  | — |  |  | — |  |  | (6.3 | ) |  | — |

Equity in earnings (losses) of unconsolidated affiliates in the Opportunity Funds increased $6.9 million primarily as a result of (i) $2.8 million from our share of earnings from the acquisitions of Arundel Plaza, Lincoln Road Portfolio, 1701 Belmont Avenue, 2819 Kennedy Boulevard, and Promenade at Manassas ("2012 and 2013 Fund Unconsolidated Acquisitions"), (ii) $1.7 million following the settlement of legal proceedings from our Mervyn's investment during 2012 ("Mervyns"), (iii) $1.3 million from our share of earnings from our investment in the Self-Storage Management company during 2013 ("Self-Storage Management"), and (iv) $0.8 million of distribution in excess of basis from our Shopko investment during 2013 ("Shopko").
Interest expense in the Core Portfolio increased $2.5 million primarily due to the Consolidation of Brandywine. Interest expense in the Opportunity Funds increased $1.9 million, primarily due to an increase of $2.7 million related to higher average outstanding borrowings offset by a decrease of $0.5 million related to lower average interest rates and a $0.7 million increase in capitalized interest in 2013.
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Income from discontinued operations represents activity related to properties held for sale in 2013 and a property sold during 2012.
Net (income) loss attributable to noncontrolling interests - Continuing operations and Discontinued operations primarily represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above.
Comparison of the nine months ended September 30, 2013 ("2013") to the nine months ended September 30, 2012 ("2012")

(dollars in millions) | 2013 |  | 2012
Revenues | Core Portfolio |  | Opportunity Funds |  | Notes Receivable |  | Core Portfolio |  | Opportunity Funds |  | Notes Receivable
Rental income | $ | 66.8 |  |  | $ | 21.3 |  |  | $ | — |  |  | $ | 40.4 |  |  | $ | 18.8 |  |  | $ | — |
Interest income | — |  |  | — |  |  | 9.2 |  |  | — |  |  | — |  |  | 6.1 |
Expense reimbursements | 14.6 |  |  | 6.2 |  |  | — |  |  | 8.6 |  |  | 5.2 |  |  | — |
Other | 0.9 |  |  | 2.9 |  |  | — |  |  | 1.2 |  |  | 0.7 |  |  | — |
Total revenues | $ | 82.3 |  |  | $ | 30.4 |  |  | $ | 9.2 |  |  | $ | 50.2 |  |  | $ | 24.7 |  |  | $ | 6.1 |

Rental income in the Core Portfolio increased $26.4 million primarily as a result of additional rents of (i) $13.1 million from 2013 and 2012 Core Acquisitions, (ii) $12.3 million from the Consolidation of Brandywine and (iii) $0.9 million as a result of re-anchoring and leasing activities at Branch Plaza ("Core Re-anchoring"). Rental income in the Opportunity Funds increased $2.5 million primarily as a result of additional rents of (i) $1.4 million from acquisitions of 3780-3858 Nostrand Avenue and Paramus Plaza ("2013 Fund Acquisitions"), (ii) $0.7 million from acquisitions of 210 Bowery, 3104 M Street and Lincoln Park Center ("2012 Fund Acquisitions") and (iii) $0.4 million from leases that commenced during 2012 and 2013 at 640 Broadway and Marcus Avenue ("Fund Redevelopment Properties").
The increase in interest income was primarily due to the origination of two notes during December 2012, partially offset by the repayment of three notes during 2012.
Expense Reimbursements in the Core Portfolio increased $6.0 million primarily as a result of (i) $2.2 million from the Consolidation of Brandywine, (ii) $2.3 million from the 2013 and 2012 Core Acquisitions, (iii) $0.3 million from Core Re-anchoring and (iv) an increase in snow related reimbursements and increased real estate tax reimbursements.
Other income in the Opportunity Funds increased $2.2 million primarily as a result of the collection of a note receivable originated in 2010, which had been written off prior to 2013.

(dollars in millions) | 2013 |  | 2012
Operating Expenses | Core Portfolio |  | Opportunity Funds |  | Notes Receivable |  | Core Portfolio |  | Opportunity Funds |  | Notes Receivable
Property operating | $ | 9.6 |  |  | $ | 3.8 |  |  | $ | — |  |  | $ | 6.7 |  |  | $ | 3.4 |  |  | $ | — |
Other operating | 1.4 |  |  | 1.3 |  |  | — |  |  | 1.0 |  |  | 1.9 |  |  | — |
Real estate taxes | 10.1 |  |  | 5.6 |  |  | — |  |  | 7.2 |  |  | 4.8 |  |  | — |
General and administrative | 16.1 |  |  | 1.2 |  |  | — |  |  | 15.2 |  |  | 1.4 |  |  | — |
Depreciation and amortization | 21.1 |  |  | 8.2 |  |  | — |  |  | 12.0 |  |  | 8.7 |  |  | — |
Total operating expenses | $ | 58.3 |  |  | $ | 20.1 |  |  | $ | — |  |  | $ | 42.1 |  |  | $ | 20.2 |  |  | $ | — |

Property operating expenses in the Core Portfolio increased $2.9 million primarily as a result of $2.0 million from the Consolidation of Brandywine, $0.7 million from the 2013 and 2012 Core Acquisitions, and $0.4 million from additional snow related expenses.
Real estate taxes in the Core Portfolio increased $2.9 million primarily as a result of $1.6 million from the 2013 and 2012 Core Acquisitions, $1.0 million from the Consolidation of Brandywine, and $0.4 million from general tax increases across the portfolio.
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Depreciation and amortization in the Core Portfolio increased $9.1 million primarily as a result of $5.5 million from the 2013 and 2012 Core Acquisitions, $2.7 million from the Consolidation of Brandywine, and $0.3 million from Core Re-anchoring.

(dollars in millions) | 2013 |  | 2012
Other | Core Portfolio |  | Opportunity Funds |  | Notes Receivable |  | Core Portfolio |  | Opportunity Funds |  | Notes Receivable
Equity in earnings (losses) of unconsolidated affiliates | $ | (0.1 | ) |  | $ | 7.4 |  |  | $ | — |  |  | $ | 0.2 |  |  | $ | 1.8 |  |  | $ | — |
Impairment of asset | (1.5 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Interest and other finance expense | (19.2 | ) |  | (10.4 | ) |  | — |  |  | (11.4 | ) |  | (5.2 | ) |  | — |
Income tax benefit (provision) | 0.2 |  |  | (0.2 | ) |  | — |  |  | (1.9 | ) |  | 0.8 |  |  | — |
Income from discontinued operations | 0.4 |  |  | 9.9 |  |  | — |  |  | 0.2 |  |  | 17.4 |  |  | — |
Net (income) loss attributable to noncontrolling interests - |  |  |  |  |  |  |  |  |  |  |
- Continuing operations | — |  |  | 6.4 |  |  | — |  |  | — |  |  | 11.8 |  |  | — |
- Discontinued operations | (0.2 | ) |  | (8.3 | ) |  | — |  |  | (0.1 | ) |  | (13.9 | ) |  | — |

Equity in earnings (losses) of unconsolidated affiliates in the Opportunity Funds increased $5.6 million primarily as a result of (i) $3.3 million increase from Self-Storage Management, (ii) $3.0 million from our share of earnings from 2012 and 2013 Fund Unconsolidated Acquisitions, (iii) $1.7 million from Mervyns, and (iv) $0.8 million from Shopko. These increases were partially offset by our share of a $3.4 million gain on sale of an unconsolidated Opportunity Fund investment during 2012.
Impairment of asset in the Core Portfolio represents an impairment charge on Walnut Hill Plaza during 2013. See Note 1 in the Notes to Consolidated Financial Statements for a discussion of the impairment charge.
Interest expense in the Core Portfolio increased $7.8 million primarily due to the Consolidation of Brandywine. Interest expense in the Opportunity Funds increased $5.2 million primarily due to an increase of $7.2 million related to higher average outstanding borrowings offset by a decrease of $1.2 million related to lower average interest rates and a $1.3 million increase in capitalized interest during 2013.
The variance in the income tax provision in the Core Portfolio of $2.1 million relates to the amendment of Opportunity Fund agreements to re-characterize certain fee income as priority distributions during 2013. The variance in the income tax provision in the Opportunity Funds of $1.0 million relates to an increase in taxable income from Self-Storage Management.
Income from discontinued operations represents activity related to properties held for sale in 2013 and properties sold during 2013 and 2012. See Note 4 in the Notes to Consolidated Financial Statements for a discussion of our 2013 disposition.
Net (income) loss attributable to noncontrolling interests - Continuing operations and Discontinued operations primarily represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above.
CORE PORTFOLIO PERFORMANCE
The following discussion of net property operating income ("NOI"), same-store NOI and rent spreads on new and renewal leases includes both our consolidated and pro-rata share of unconsolidated properties within our Core Portfolio. In contrast, our Opportunity Funds invest primarily in properties that typically require significant leasing and redevelopment. Given that our Opportunity Funds are finite-life investment vehicles, these assets are typically sold following the completion of these activities. Accordingly, we believe these measures are not meaningful for our Opportunity Fund investments.
NOI represents property-related revenues less expenses. We consider NOI, same-store NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance metrics due to their widespread acceptance and use within the REIT investor and analyst communities. These metrics are presented to assist investors
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in analyzing our property performance. However, our method of calculating these metrics may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
NOI for our Core Portfolio is determined as follows:

(dollars in millions) |  |  |  |  |  |  |  |
Reconciliation of Consolidated Operating Income to NOI - Core Portfolio |  |  |  |
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2013 |  | 2012 |  | 2013 |  | 2012
Consolidated Operating Income |  | $ | 12.8 |  |  | $ | 7.1 |  |  | $ | 43.5 |  |  | $ | 18.7 |
Add back: |  |  |  |  |  |  |  |
General and administrative |  | 5.3 |  |  | 5.5 |  |  | 17.3 |  |  | 16.6 |
Depreciation and amortization |  | 10.5 |  |  | 7.4 |  |  | 29.3 |  |  | 20.7 |
Less: |  |  |  |  |  |  |  |
Management fee income |  | — |  |  | (0.3 | ) |  | (0.1 | ) |  | (1.2 | )
Interest income |  | (3.0 | ) |  | (1.9 | ) |  | (9.3 | ) |  | (6.1 | )
Straight-line rent and other adjustments |  | (1.7 | ) |  | (0.3 | ) |  | (4.3 | ) |  | (1.3 | )
Consolidated NOI |  | 23.9 |  |  | 17.5 |  |  | 76.4 |  |  | 47.4 |
Noncontrolling interest in consolidated NOI |  | (6.7 | ) |  | (4.6 | ) |  | (24.7 | ) |  | (10.9 | )
Pro-rata share of consolidated NOI |  | 17.2 |  |  | 12.9 |  |  | 51.7 |  |  | 36.5 |
Less: Operating Partnership's interest in Opportunity Fund NOI included above |  | (0.9 | ) |  | (1.1 | ) |  | (3.7 | ) |  | (2.4 | )
Add: Operating Partnership's share of unconsolidated joint ventures NOI 1 |  | 0.6 |  |  | 1.5 |  |  | 2.0 |  |  | 4.9 |
Core Portfolio NOI |  | $ | 16.9 |  |  | $ | 13.3 |  |  | $ | 50.0 |  |  | $ | 39.0 |

Note:
(1) Does not include the Operating Partnership's share of NOI from unconsolidated joint ventures within the Opportunity Funds
Same-store NOI includes properties in our Core Portfolio that we owned for both the current and prior periods presented, but excludes those properties which we acquired, redeveloped or classified as discontinued operations during these periods. We define a redevelopment property as an asset that is being repositioned in its market or undergoing significant renovation. Redevelopment activities involve taking a substantial portion of leasable space temporarily out of service and typically include structural work, demising of existing space and/or facade renovation. The following table summarizes same-store NOI for our Core Portfolio for the three and nine months ended September 30, 2013 and 2012:
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Reconciliation of Core Portfolio NOI to Same-Store NOI |  |  |  |
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(dollars in millions) |  | 2013 |  | 2012 |  | 2013 |  | 2012
Core Portfolio NOI - Continuing Operations |  | $ | 16.9 |  |  | $ | 13.3 |  |  | $ | 50.0 |  |  | $ | 39.0 |
Less properties excluded from Same-Store NOI |  | (3.7 | ) |  | (0.7 | ) |  | (14.4 | ) |  | (6.2 | )
Same-Store NOI |  | $ | 13.2 |  |  | $ | 12.6 |  |  | $ | 35.6 |  |  | $ | 32.8 |
Percent change from historic period |  | 4.8 | % |  |  |  | 8.4 | % |  |
Components of Same-Store NOI |  |  |  |  |  |  |  |
Same-Store Revenues |  | $ | 18.4 |  |  | $ | 17.3 |  |  | $ | 49.0 |  |  | $ | 45.1 |
Same-Store Operating Expenses |  | 5.2 |  |  | 4.7 |  |  | 13.4 |  |  | 12.3 |
Same-Store NOI |  | $ | 13.2 |  |  | $ | 12.6 |  |  | $ | 35.6 |  |  | $ | 32.8 |

Following is a summary of the net change in base rent as compared to that of the former leases on new and renewal leases ("Rent Spreads") executed within our Core Portfolio during the three and nine months ended September 30, 2013:

Rent Spreads on New and Renewal Leases - Core Portfolio |  |  |  |
| Three Months Ended |  | Nine Months Ended
| September 30, 2013 |  | September 30, 2013
Core Portfolio New and Renewal Leases | Cash Basis |  | Straight-Line Basis (GAAP) (1) |  | Cash Basis |  | Straight-Line Basis (GAAP) (1)
Number of new and renewal leases executed | 26 |  |  | 26 |  |  | 62 |  |  | 62 |
Gross leasable area | 154,533 |  |  | 154,533 |  |  | 304,540 |  |  | 304,540 |
New average base rent | $ | 18.67 |  |  | $ | 19.39 |  |  | $ | 22.06 |  |  | $ | 23.68 |
Expiring average base rent | $ | 17.85 |  |  | $ | 16.97 |  |  | $ | 20.58 |  |  | $ | 19.83 |
Percent growth in average base rent | 4.6 | % |  | 14.3 | % |  | 7.2 | % |  | 19.4 | %
Average cost per square foot (2) | $ | 16.61 |  |  | $ | 16.61 |  |  | $ | 13.65 |  |  | $ | 13.65 |
Weighted average lease term (years) | 7.6 |  |  | 7.6 |  |  | 6.6 |  |  | 6.6 |

Notes:
(1) Includes contractual rental escalations, abated rent and lease incentives.
(2) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
FUNDS FROM OPERATIONS
Consistent with the National Association of Real Estate Investment Trusts ("NAREIT") definition, we define funds from operations ("FFO") as net income attributable to common shareholders (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization, impairment of depreciable assets and after adjustments for unconsolidated partnerships and joint ventures.
We consider FFO to be an appropriate supplemental disclosure of operating performance for an equity REIT due to its widespread acceptance and use within the REIT and analyst communities. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of depreciable real estate. However, our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent cash generated from operations as defined by GAAP and is not indicative of cash
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available to fund all cash needs, including distributions. FFO should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity.
The reconciliation of net income to FFO for the three and nine months ended September 30, 2013 and 2012 is as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
(amounts in millions, except per share amounts) | 2013 |  | 2012 |  | 2013 |  | 2012
Funds From Operations |  |  |  |  |  |  |
Net income attributable to Common Shareholders | $ | 9.5 |  |  | $ | 7.6 |  |  | $ | 27.9 |  |  | $ | 18.4 |
Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests’ share) |  |  |  |  |  |  |  |  |
Consolidated affiliates | 7.5 |  |  | 5.8 |  |  | 21.1 |  |  | 16.3 |
Unconsolidated affiliates | 0.8 |  |  | 0.4 |  |  | 2.0 |  |  | 1.2 |
Gain on sale (net of noncontrolling interests’ share) |  |  |  |  |  |  |
Consolidated affiliates | — |  |  | (1.2 | ) |  | (0.8 | ) |  | (1.4 | )
Unconsolidated affiliates | — |  |  | — |  |  | — |  |  | (0.6 | )
Impairment of asset | — |  |  | — |  |  | 1.5 |  |  | — |
Income attributable to noncontrolling interests’ in Operating Partnership | 0.1 |  |  | 0.1 |  |  | 0.4 |  |  | 0.3 |
Funds from operations | $ | 17.9 |  |  | $ | 12.7 |  |  | $ | 52.1 |  |  | $ | 34.2 |
Funds From Operations per Share - Diluted |  |  |  |  |  |  |  |  |
Weighted average number of Common Shares and OP Units | 56.4 |  |  | 47.4 |  |  | 55.4 |  |  | 45.5 |
Diluted funds from operations, per share | $ | 0.32 |  |  | $ | 0.27 |  |  | $ | 0.94 |  |  | $ | 0.75 |

USES OF LIQUIDITY
Our principal uses of liquidity are:

• | Core Portfolio acquisitions, redevelopment and re-tenanting activities;

• | Investments in notes receivable and other real estate related investments;

• | Investments through our Opportunity Funds, which include the funding of our share of committed capital;

• | Distributions to our Common Shareholders, OP and LTIP Unit holders, and noncontrolling interests; and

• | Payment of principal and interest on our mortgage loans and credit facilities.

Investments
Core Portfolio
Through October 31, 2013, we acquired three properties for $120.9 million. See Note 4 to the Notes to Consolidated Financial Statements for a discussion of these investments.
During 2011, we initiated the key re-anchoring of three properties. During 2012 we completed two of these projects. Leases for prospective tenants at the third project, the Crossroads Shopping Center, are in various stages of negotiation. Costs associated with the remaining re-tenanting activity at this center are expected to range between $7.0 million and $10.0 million and completion is expected to occur during 2014.
Notes Receivable
We made no investments in notes receivable during the nine months ended September 30, 2013. See Note 6 to the Notes to Consolidated Financial Statements for an overview of our notes receivable.
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Opportunity Funds
During February 2013, Fund III entered into a joint venture agreement with an unaffiliated partner to acquire a 99% controlling interest in Nostrand Place. The consideration paid by us was the contribution of the unliquidated balance of our note receivable collateralized by Nostrand Place and required no cash contribution as further described in Note 4 to the Notes to Consolidated Financial Statements.
During June 2013, Fund IV, acquired a 98% initial interest in 2819 Kennedy Boulevard and a 99% initial interest in Promenade at Manassas as further described in Note 4 to the Notes to Consolidated Financial Statements. Fund IV's cash contribution to these two investments totaled $47.3 million.
During October 2013, Fund IV acquired 1151 Third Avenue, located in Manhattan, New York, for a purchase price of $18.0 million.
During October 2013, Fund IV acquired Lake Montclair, located in Dumfries, Virginia, for a purchase price of $19.3 million.
As part of our Opportunity Fund strategy, we invest in real estate assets that require significant redevelopment. As of September 30, 2013, we had eight redevelopment projects, one of which is under construction and seven are in various stages of development as follows:

(dollars in millions) |  |  |  |  |  |
Property |  | Owner |  | Costs to date |  | Anticipated additional costs (1) | Square feet upon completion | Anticipated completion dates
City Point |  | Fund II |  | $ | 213.1 |  |  | $66.9 - $96.9 | 675,000 |  | 2015
Sherman Plaza |  | Fund II |  | 34.7 |  |  | TBD | TBD |  | TBD
Sheepshead Bay |  | Fund III |  | 23.0 |  |  | TBD | TBD |  | TBD
723 N. Lincoln Lane |  | Fund III |  | 6.7 |  |  | TBD | TBD |  | TBD
Cortlandt Crossing |  | Fund III |  | 11.5 |  |  | 35.5 - 44.5 | 150,000 - 170,000 |  | 2016
3104 M Street NW |  | Fund III |  | 3.0 |  |  | 4.0 - 5.5 | 10,000 |  | TBD
Broad Hollow Commons |  | Fund III |  | 13.2 |  |  | 36.8 - 46.8 | 180,000 - 200,000 |  | 2016
210 Bowery |  | Fund IV |  | 7.7 |  |  | 3.8 - 4.3 | 10,000 |  | 2015
Total |  |  |  | $ | 312.9 |  |  |  |  |

Notes:
TBD - To be determined
(1) Anticipated additional costs are estimated ranges for completing the projects and include costs for tenant improvements and leasing commissions.
Distributions
In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. For the three and nine months ended September 30, 2013, we paid dividends and distributions on our Common Shares, Common OP Units and LTIP Unit holders totaling $12.0 million and $33.4 million, respectively, which were funded from the Operating Partnership's share of operating cash flow.
In addition, distributions of $26.3 million were made to noncontrolling interests in Fund III during the nine months ended September 30, 2013. Of this, $7.5 million was made from operating cash flows and $18.8 million resulted from financing proceeds.
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Share Repurchase
We have an existing share repurchase program that authorizes management, at its discretion, to repurchase up to $20.0 million of our outstanding Common Shares. The program may be discontinued or extended at any time and there is no assurance that we will purchase the full amount authorized. Under this program we have repurchased 2.1 million Common Shares, none of which were repurchased after December 2001. As of September 30, 2013, management has remaining authority to repurchase up to approximately $7.5 million of our outstanding Common Shares under this program.
SOURCES OF LIQUIDITY
Our principal sources of liquidity are:

• | The issuance of public equity, OP Units or debt instruments;

• | Cash on hand of $88.4 million as of September 30, 2013 and cash flows from operating activities;

• | Unfunded capital commitments from noncontrolling interests;

• | Future sales of existing properties; and

• | Debt financings

Issuance of Equity
During April 2012, we filed a shelf registration on Form S-3 providing for offerings of up to a total of $500.0 million of Common Shares, Preferred Shares, debt securities and other securities. As of September 30, 2013, we have remaining capacity under this registration statement to issue up to approximately $81.3 million of these securities.
During the first nine months of 2013, we have issued 2.8 million Common Shares under our at-the-market ("ATM") equity program for net proceeds of $75.8 million. See Note 3 in the Notes to Consolidated Financial Statements for additional information related to our ATM equity program.
Opportunity Fund Capital
During the first nine months of 2013, capital contributions received from noncontrolling interests in our Opportunity Funds totaled $17.3 million. As of September 30, 2013, unfunded capital commitments from noncontrolling interests in our Opportunity Funds totaled $455.9 million. See Note 1 in the Notes to Consolidated Financial Statements for additional information related to our Opportunity Fund capital activity.
Asset Sales
During May 2013, we closed on the sale of our self-storage facility located in Pelham, New York for $11.9 million, which generated net proceeds of $5.2 million after the repayment of $6.7 million of debt.
We are currently under contract to sell the A&P Shopping Plaza located in Boonton, New Jersey for a sales price of $18.4 million. In addition, we are currently under contract to sell two Fund II assets, Fordham Place in the Bronx, New York and the retail component of Pelham Manor Shopping Plaza, located in Westchester, New York for a combined sales price of $192.4 million.
Debt Financings
During the nine months ended September 30, 2013, we received loan proceeds of $80.5 million, net of repayments on loans that were refinanced, on five debt financings. In addition, we received $197.0 million of loan proceeds which have been deposited in a restricted cash account available to fund future project construction activities. See Note 8 in the Notes to Consolidated Financial Statements for additional information on the transactions related to mortgage loans, bond financing and credit facilities completed during the nine months ended September 30, 2013.
As of September 30, 2013, mortgages, convertible notes and other notes payable aggregated $1,002.5 million, net of unamortized premium of $2.1 million, and the mortgages were collateralized by 35 properties and related tenant leases. Interest rates on our outstanding mortgage indebtedness, convertible notes and other notes payable ranged from 1.00% to 7.25% with maturities that ranged from December 2013 to April 2023. Taking into consideration $180.5 million of notional principal under variable to fixed-rate swap agreements currently in effect, $834.9 million of the mortgages, convertible notes and other notes payable, or 83.3%,
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was fixed at a 5.04% weighted average interest rate and $167.6 million, or 16.7% was floating at a 3.29% weighted average interest rate as of September 30, 2013. There is $20.8 million of debt maturing in 2013 at a weighted average interest rate of 5.85%. Of this amount, $1.8 million represents scheduled annual amortization. As it relates to the remaining maturities in 2013, we may not have sufficient cash on hand to repay such indebtedness, and, therefore, we expect to refinance at least a portion of this indebtedness or select other alternatives based on market conditions as these loans mature.
The following table sets forth certain information pertaining to our secured and unsecured credit facilities:

(dollars in millions) Borrower |  | Total amount of credit facility |  | Amount borrowed as of December 31, 2012 |  | Net borrowings (repayments) during the nine months ended September 30, 2013 |  | Amount borrowed as of September 30, 2013 |  | Letters of credit outstanding as of September 30, 2013 |  | Amount available under credit facilities as of September 30, 2013
Acadia Realty, LP (1) |  | $ | 150.0 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 12.5 |  |  | $ | 137.5 |
Fund IV (2) |  | 150.0 |  |  | 93.1 |  |  | (35.0 | ) |  | 58.1 |  |  | — |  |  | 91.9 |
Total |  | $ | 300.0 |  |  | $ | 93.1 |  |  | $ | (35.0 | ) |  | $ | 58.1 |  |  | $ | 12.5 |  |  | $ | 229.4 |

Notes:
(1) This is an unsecured revolving credit facility.
(2) The Fund IV revolving subscription line of credit is secured by unfunded investor capital commitments.
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The following table summarizes our mortgage and other indebtedness as of September 30, 2013 and December 31, 2012:

(dollars in millions) |  |  |  |  |  |
Description of Debt and Collateral | 9/30/13 | 12/31/12 | Interest Rate at 9/30/13 | Maturity | Payment Terms
Mortgage notes payable – variable-rate |  |  |  |  |
161st Street | $ | — |  | $ | 28.9 |  | 6.19% (LIBOR+6.00%) | 4/1/2013 | Interest only monthly
210 Bowery | 4.6 |  | — |  | 2.13% (LIBOR+1.95%) | 6/1/2014 | Interest only monthly
Branch Shopping Plaza | 12.3 |  | 12.6 |  | 2.43% (LIBOR+2.25%) | 9/30/2014 | Monthly principal and interest
640 Broadway | 22.8 |  | 22.8 |  | 3.13% (LIBOR+2.95%) | 7/1/2015 | Interest only monthly until 7/14; monthly principal and interest thereafter
Heritage Shops | 21.0 |  | 21.0 |  | 2.43% (LIBOR+2.25%) | 8/10/2015 | Interest only monthly until 9/13; monthly principal and interest thereafter
City Point | 20.6 |  | 20.7 |  | 2.68% (LIBOR+3.50%) | 8/12/2015 | Interest only monthly
City Point | 20.0 |  | — |  | 5.18% (LIBOR+5.00%) | 8/23/2015 | Interest only monthly
Cortlandt Towne Center | 85.0 |  | 73.5 |  | 2.21% (LIBOR+1.65%) | 10/26/2015 | Interest only monthly
New Hyde Park Shopping Center | 6.3 |  | 6.5 |  | 2.43% (LIBOR+2.25%) | 11/10/2015 | Monthly principal and interest
Nostrand Avenue | 12.7 |  | — |  | 2.83% (LIBOR+2.65%) | 2/15/2016 | Monthly principal and interest
161st Street | 29.5 |  | — |  | 2.68% (LIBOR+2.50%) | 4/1/2018 | Interest only monthly
Village Commons Shopping Center | 9.1 |  | 9.2 |  | 1.58% (LIBOR+1.40%) | 6/30/2018 | Monthly principal and interest
West Diversey | 15.0 |  | 15.3 |  | 2.08% (LIBOR+1.90%) | 4/27/2019 | Monthly principal and interest
4401 White Plains Rd | 6.3 |  | 6.4 |  | 2.08% (LIBOR+1.90%) | 8/1/2022 | Monthly principal and interest
28 Jericho Turnpike | 16.3 |  | — |  | 2.08% (LIBOR+1.90%) | 1/23/2023 | Monthly principal and interest
60 Orange Street | 8.5 |  | — |  | 1.93% (LIBOR+1.75%) | 4/3/2023 | Monthly principal and interest
Sub-total mortgage notes payable | 290.0 |  | 216.9 |  |  |  |
Credit facilities - variable rate: |  |  |  |  |  |  |
Unsecured line of credit | — |  | — |  | 1.73% (LIBOR+1.55%) | 1/3/2016 | Interest only monthly
Fund IV revolving subscription line of credit | 58.1 |  | 93.1 |  | 1.83% (LIBOR+1.65%) | 11/20/2015 | Interest only monthly
Sub-total credit facilities | 58.1 |  | 93.1 |  |  |  |
Interest rate swaps (1) | (180.5 | ) | (132.8 | ) |  |  |
Total variable-rate debt | 167.6 |  | 177.2 |  |  |  |

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(dollars in millions) |  |  |  |  |  |
Description of Debt and Collateral | 9/30/13 | 12/31/12 | Interest Rate at 9/30/13 | Maturity | Payment Terms
Mortgage notes payable – fixed-rate |  |  |  |  |  |  |
Lincoln Park Centre | $ | 19.1 |  | $ | 19.5 |  | 5.85% | 12/1/2013 | Monthly principal and interest
Clark Diversey | 4.2 |  | 4.3 |  | 6.35% | 7/1/2014 | Monthly principal and interest
New Loudon Center | 13.5 |  | 13.6 |  | 5.64% | 9/6/2014 | Monthly principal and interest
City Point | 20.0 |  | 20.0 |  | 7.25% | 11/1/2014 | Interest only quarterly
Crescent Plaza | 16.8 |  | 17.0 |  | 4.98% | 9/6/2015 | Monthly principal and interest
Pacesetter Park Shopping Center | 11.6 |  | 11.7 |  | 5.12% | 11/6/2015 | Monthly principal and interest
Elmwood Park Shopping Center | 32.9 |  | 33.3 |  | 5.53% | 1/1/2016 | Monthly principal and interest
Chicago Portfolio | 14.0 |  | 14.3 |  | 5.62% | 2/1/2016 | Monthly principal and interest
Chicago Portfolio | 1.5 |  | 1.5 |  | 5.55% | 2/1/2016 | Monthly principal and interest
The Gateway Shopping Center | 19.8 |  | 20.0 |  | 5.44% | 3/1/2016 | Monthly principal and interest
340 River Street | 6.9 |  | 6.9 |  | 6.26% | 5/1/2016 | Monthly principal and interest
330 River Street | 4.1 |  | 4.2 |  | 3.68% | 5/1/2016 | Monthly principal and interest
Brandywine | 166.2 |  | — |  | 5.99% | 7/1/2016 | Interest only monthly
Walnut Hill Plaza | 23.0 |  | 23.2 |  | 6.06% | 10/1/2016 | Monthly principal and interest
Brentwood Shopping Center | 16.3 |  | 16.4 |  | 6.35% | 12/1/2016 | Monthly principal and interest
239 Greenwich Avenue | 26.0 |  | 26.0 |  | 5.42% | 2/11/2017 | Interest only monthly
639 W Diversey | 4.4 |  | 4.4 |  | 6.65% | 3/1/2017 | Monthly principal and interest
Merrillville Plaza | 25.9 |  | 26.2 |  | 5.88% | 8/1/2017 | Monthly principal and interest
216th Street | 25.5 |  | 25.5 |  | 5.80% | 10/1/2017 | Interest only monthly
City Point | 197.0 |  | — |  | 4.75% | 2018 (2) | Interest only monthly
City Point | 5.3 |  | 5.2 |  | 1.00% | 8/23/2019 | Interest only monthly
Interest rate swaps (1) | 180.5 |  | 132.8 |  | 3.91% |  |
Total fixed-rate debt | 834.5 |  | 426.0 |  |  |  |  |
Unamortized premium (discount) | 2.1 |  | (0.1 | ) |  |  |  |
Total | $ | 1,004.2 |  | $ | 603.1 |  |  |  |  |

Notes:
(1) Represents the amount of our variable-rate debt that has been fixed through certain cash flow hedge transactions. See Note 7 to the Notes to Consolidated Financial Statements for a discussion of these transactions.
(2) Maturity date for this loan is 5 years from the approval of the final funds from USCIS which is currently anticipated to be during 2013. See Note 8 to the Notes to Consolidated Financial Statements for more information relating to this loan.
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CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At September 30, 2013, maturities on our mortgages, convertible notes and other notes payable ranged from December 2013 to April 2023. In addition, we have non-cancelable ground leases at six of our shopping centers. We also lease space for our corporate headquarters for a term expiring in 2015. The following table summarizes our debt maturities, obligations under non-cancelable operating leases and construction contracts as of September 30, 2013:

(dollars in millions) | Payments due by period
Contractual obligations | Total |  | Less than 1 year |  | 1 to 3 years |  | 3 to 5 years |  | More than 5 years
Future debt maturities | $ | 1,002.4 |  |  | $ | 59.9 |  |  | $ | 541.2 |  |  | $ | 159.3 |  |  | $ | 242.0 |
Interest obligations on debt | 167.5 |  |  | 47.2 |  |  | 76.0 |  |  | 31.7 |  |  | 12.6 |
Operating lease obligations | 25.7 |  |  | 2.0 |  |  | 2.1 |  |  | 4.5 |  |  | 17.1 |
Construction commitments | 100.0 |  |  | 100.0 |  |  | — |  |  | — |  |  | — |
Total | $ | 1,295.6 |  |  | $ | 209.1 |  |  | $ | 619.3 |  |  | $ | 195.5 |  |  | $ | 271.7 |

OFF BALANCE SHEET ARRANGEMENTS
We have investments in the following joint ventures for the purpose of investing in operating properties. We account for these investments using the equity method of accounting. As such, our financial statements reflect our investment in, and our share of income and loss from but not the individual assets and liabilities of these joint ventures.
See Note 5 to the Notes to Consolidated Financial Statements for a discussion of our unconsolidated investments. Our pro-rata share of debt related to these unconsolidated investments is as follows:

(dollars in millions) | Operating Partnership |  |
Investment | Pro-rata share of mortgage debt | Interest rate at September 30, 2013 | Maturity Date
Lincoln Road (Fund III) | $ | 3.7 |  | 6.14% | August 2014
Crossroads | 28.7 |  | 5.37% | December 2014
Parkway Crossing | 2.4 |  | 2.20% | January 2015
Arundel Plaza | 1.6 |  | 5.60% | April 2015
White City Shopping Center | 6.4 |  | 2.60% | December 2017
Lincoln Road (Fund IV) | 18.4 |  | 1.78% | June 2018
Georgetown Portfolio | 9.1 |  | 4.72% | December 2027
Total | $ | 70.3 |  |  |

In addition, we have arranged for the provision of two separate letters of credit in connection with certain leases and investments. As of September 30, 2013, there was no outstanding balance under the letters of credit. If the letters of credit were fully drawn, the maximum amount of our exposure would be $12.5 million.
In addition to our derivative financial instruments, one of our unconsolidated affiliates is a party to two separate interest rate LIBOR swaps with a notional value of $28.7 million, which effectively fix the interest rate at 5.54% and expire in December 2017. Our pro-rata share of the fair value of such affiliates' derivative liabilities totaled $0.4 million at September 30, 2013.
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HISTORICAL CASH FLOW
The following table compares the historical cash flow for the nine months ended September 30, 2013 ("2013") with the cash flow for the nine months ended September 30, 2012 ("2012"):

| Nine Months Ended September 30,
(dollars in millions) | 2013 |  | 2012 |  | Change
Net cash provided by operating activities | $ | 41.6 |  |  | $ | 36.0 |  |  | $ | 5.6 |
Net cash used in investing activities | (160.2 | ) |  | (190.1 | ) |  | 29.9 |
Net cash provided by financing activities | 115.2 |  |  | 149.6 |  |  | (34.4 | )
Total | $ | (3.4 | ) |  | $ | (4.5 | ) |  | $ | 1.1 |

A discussion of the significant changes in cash flow for 2013 compared to 2012 is as follows:
Operating Activities
The increase of $5.6 million in net cash provided by operating activities primarily resulted from the following:
Items which contributed to an increase in cash from operating activities:

• | Additional net operating income from Core and Opportunity Fund Property acquisitions and redevelopments

• | Additional cash of $7.2 million used to fund deposits for potential acquisitions during 2012

Items which contributed to a decrease in cash from operating activities:

• | Additional cash of $17.2 million used to fund prepaid ground rent for Fund II's City Point project during 2013

Investing Activities
The decrease of $29.9 million in net cash used in investing activities primarily resulted from the following:
Items which contributed to a decrease in cash used in investing activities:

• | An increase of $74.9 million in 2013 in return of capital from unconsolidated affiliates

• | A decrease of $34.5 million related to advances of notes receivable during 2013

• | An increase of $13.8 million in 2013 in collections of notes receivable

Items which contributed to an increase in cash used in investing activities:

• | An increase of $33.0 million used in investments in and advances to unconsolidated affiliates during 2013 related to our investments in 2819 Kennedy Boulevard and Promenade at Manassas

• | A decrease of $32.9 million in proceeds from the sale of properties during 2013

• | An increase of $23.7 million used in redevelopment and improvement of properties during 2013

Financing Activities
The $34.4 million decrease in net cash provided by financing activities resulted primarily from the following:
Items which contributed to a decrease in cash from financing activities:

• | A decrease of $94.8 million in contributions from noncontrolling interests during 2013

• | A decrease of $19.7 million of net proceeds from the issuance of Common Shares, net of costs during 2013

• | An increase of $8.8 million in dividends paid to Common Shareholders during 2013

Items which contributed to an increase in cash from financing activities:
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• | An additional $62.0 million in mortgage debt proceeds, net of principal payments and funding of a restricted cash account during 2013

• | A decrease of $32.9 million in distributions to noncontrolling interests during 2013

INFLATION
Our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our net income. Such provisions include clauses enabling us 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 our leases are for terms of less than ten years, which permits us to seek to increase rents upon re-rental at market rates if current rents are below the then existing market rates. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our primary market risk exposure is to changes in interest rates related to our mortgage debt, convertible notes and other debt. See the discussion under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations for certain quantitative details related to our mortgage debt, convertible notes and other debt.
Currently, we manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements. As of September 30, 2013, we had total mortgage debt, convertible notes and other notes payable of $1,002.5 million, net of unamortized premium of $2.1 million, of which $834.9 million or 83.3% was fixed-rate, inclusive of interest rate swaps, and $167.6 million or 16.7% was variable-rate based upon LIBOR plus certain spreads. As of September 30, 2013, we were a party to 11 interest rate swap transactions and four interest rate caps to hedge our exposure to changes in interest rates with respect to $180.5 million and $141.0 million of LIBOR-based variable-rate debt, respectively.
Of our total consolidated outstanding debt, $20.8 million and $60.8 million will become due in 2013 and 2014, respectively. As we intend on refinancing some or all of such debt at the then-existing market interest rates, which may be greater than the current interest rate, our interest expense would increase by approximately $0.8 million annually if the interest rate on the refinanced debt increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $0.4 million.
Interest expense on our consolidated variable-rate debt, net of variable to fixed-rate swap agreements currently in effect, as of September 30, 2013 would increase by $1.7 million annually if LIBOR increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $0.1 million. We may seek additional variable-rate financing if and when pricing and other commercial and financial terms warrant. As such, we would consider hedging against the interest rate risk related to such additional variable-rate debt through interest rate swaps and protection agreements, or other means.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. In accordance with paragraph (b) of Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.
(b) Internal Control over Financial Reporting. There has not been any change in our internal control over financial reporting during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings.
During the first quarter 2013, the Company and certain affiliates, together with Michael Bloomberg, as mayor of the City of New York, certain public corporations and others were named in an Article 78 Proceeding (the “Proceeding”) brought by certain construction unions, Families United For Racial and Economic Equality and others in the Supreme Court of New York regarding the Company's City Point project. The Proceeding seeks an injunction to halt construction and financing activities until certain alleged environmental requirements are satisfied. During the third quarter 2013, the case was dismissed by the court.
During July 2013, a lawsuit was brought against the Company relating to the 2011 flood at Mark Plaza by Kmart Corporation in the Luzerne County Court of Common Pleas, State of Pennsylvania. The lawsuit alleges a breach of contract and negligence relating to landlord responsibility for damages incurred by the tenant as a result of the flood. The tenant is seeking damages in excess of $9.0 million. The Company believes that this lawsuit is without merit.
Item 1A. Risk Factors.
The most significant risk factors applicable to us are described in Item 1A. of our 2012 Form 10-K. There have been no material changes to those previously-disclosed risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
The information under the heading "Exhibit Index" below is incorporated herein by reference.
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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

November 5, 2013 | /s/ Kenneth F. Bernstein Kenneth F. Bernstein President and Chief Executive Officer (Principal Executive Officer)
November 5, 2013 | /s/ Jonathan W. Grisham Jonathan W. Grisham Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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Exhibit Index

Exhibit No. | Description
3.1 | Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.2 | First Amendment to Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.3 | Second Amendment to Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.4 | Third Amendment to Declaration of Trust of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2012.)
3.5 | Fourth Amendment to Declaration of Trust (incorporated by reference to the copy thereof filed as Exhibit 3.1 (a) to the Company's Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998.)
3.6 | Fifth Amendment to Declaration of Trust (incorporated by reference to the copy thereof filed as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.)
3.7 | Amended and Restated By-Laws of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2005.)
3.8 | First Amendment to the Amended and Restated By-Laws of the Company (incorporated by reference to the copy thereof filed as Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2009.)
4.1 | Voting Trust Agreement between the Company and Yale University dated February 27, 2002 (incorporated by reference to the copy thereof filed as Exhibit 99.1 to Yale University's Schedule 13D filed on September 25, 2002.)
31.1 | Certification of Chief Executive Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
31.2 | Certification of Chief Financial Officer pursuant to rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
99.1 | Certificate of Designation of Series A Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.5 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended June 30, 1997.)
99.2 | Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Acadia Realty Limited Partnership (incorporated by reference to the copy thereof filed as Exhibit 99.6 to the Company's Annual Report on Form 10-K filed for the fiscal year ended December 31, 2003.)
101.INS | XBRL Instance Document*
101.SCH | XBRL Taxonomy Extension Schema Document*
101.CAL | XBRL Taxonomy Extension Calculation Document*
101.DEF | XBRL Taxonomy Extension Definitions Document*
101.LAB | XBRL Taxonomy Extension Labels Document*
101.PRE | XBRL Taxonomy Extension Presentation Document*
* | Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
Note: |
(1) | Filed herewith.

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