# Acadia Realty Trust: Form 10-Q for the period ended Mar 31, 2023

- Company: [Acadia Realty Trust](/companies/akr.md) (CIK 899629)
- Form: 10-Q
- Filed: 2023-05-05
- Accepted by EDGAR: May 5, 2023, 16:06 ET
- Period: 2023-03-31
- Accession: 0000950170-23-018306
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/899629/000095017023018306/akr-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/899629/000095017023018306/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $81.8m | us-gaap:Revenues |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $12.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $123.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $22.0m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.14 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 95,189,490 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $59.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $17.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-03-31 | $17.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-03-31 | $4.19bn | us-gaap:Assets |
| Total liabilities | at 2023-03-31 | $2.00bn | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $1.75bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-03-31 | $1.67bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 42,172 characters.

### OVERVIEW

As of March 31, 2023, we own or have an ownership interest in 200 properties held through our Core Portfolio and Funds. Our Core Portfolio consists of those properties either 100% owned, or partially owned through joint venture interests, by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Funds. These properties primarily consist of street and urban retail, and suburban shopping centers. Our Funds are investment vehicles through which our Operating Partnership and outside institutional investors invest in primarily opportunistic and value-add retail real estate. Currently, we have active investments in four Funds. A summary of our wholly-owned and partially-owned retail properties and their physical occupancies at March 31, 2023 is as follows:

| Core Portfolio: | Number of Properties Development or Redevelopment | Operating | Operating Properties GLA | Occupancy |
| --- | ---: | ---: | ---: | ---: |
| Chicago Metro | 3 | 36 | 590,347 | 85.0% |
| New York Metro | — | 29 | 394,371 | 92.4% |
| Los Angeles Metro | — | 2 | 23,757 | 100.0% |
| San Francisco Metro | 2 | — | — | 0.0% |
| Dallas Metro | 2 | 14 | 121,203 | 84.5% |
| Washington DC Metro | 1 | 31 | 344,469 | 83.6% |
| Boston Metro | — | 1 | 1,050 | 100.0% |
| Suburban | 2 | 26 | 4,005,860 | 94.1% |
| Total Core Portfolio | 10 | 139 | 5,481,057 | 92.2% |
| Acadia Share of Total Core Portfolio | 10 | 139 | 5,120,168 | 92.8% |
| **Fund Portfolio:** |  |  |  |  |
| Fund II | — | 1 | 536,329 | 66.3% |
| Fund III | 1 | 1 | 4,637 | 91.6% |
| Fund IV | 1 | 26 | 696,627 | 88.6% |
| Fund V | — | 21 | 7,120,324 | 92.3% |
| Total Fund Portfolio | 2 | 49 | 8,357,917 | 90.3% |
| Acadia Share of Total Fund Portfolio | 2 | 49 | 1,824,599 | 87.6% |
| Total Core and Funds | 12 | 188 | 13,838,974 | 91.0% |
| Acadia Share of Total Core and Funds | 12 | 188 | 6,944,767 | 91.4% |

The majority of our operating income is derived from rental revenues from operating properties, including expense recoveries from tenants, offset by operating and overhead expenses.

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. Generally, 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, densely populated metropolitan areas and create value through accretive development and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our Core asset recycling and acquisition initiative.
- Generate additional external growth through an opportunistic yet disciplined acquisition program within our Funds. We target transactions with high inherent opportunity for the creation of additional value through:
- value-add investments in street retail properties, located in established and “next generation” submarkets, with re-tenanting or repositioning opportunities,
- opportunistic acquisitions of well-located real-estate anchored by distressed retailers, and
- other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt.
- Some of these investments historically have also included, and may in the future 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.

### SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED MARCH 31, 2023

### Investments

During the three months ended March 31, 2023, Fund V acquired one unconsolidated property, Mohawk Commons, located in Schenectady, New York, for $62.1 million, inclusive of transaction costs (Note 4).

On January 20, 2023, through Mervyns II we received a special cash dividend of $28.2 million from our investment in Albertsons, of which our share was $11.3 million. Additionally, following the expiration of the lock-up period and distribution of 2.5 million shares of Albertsons to our partners, we directly own 1.6 million shares of Albertsons (Note 4, Note 8).

### Financing Activity

During the three months ended March 31, 2023, we (Note 7):

- extended two Fund mortgages totaling $58.0 million (excluding principal reductions of $0.2 million);
- through Fund V, entered into one new mortgage at an unconsolidated property for $39.7 million, and refinanced a $36.0 million mortgage loan at an unconsolidated property; and
- made scheduled principal payments of $2.0 million.

We also repaid one Fund mortgage at a property for $31.9 million using proceeds from the Fund V subscription line, which was extended for six months, and refinanced one Fund mortgage at a property for $14.6 million with a new mortgage of $16.5 million (Note 16);

### Structured Financing Investments

During the three months ended March 31, 2023, we funded $2.0 million of a $12.8 million construction loan commitment to an unconsolidated venture (Note 4). Through Fund V, we refinanced a $31.7 million bridge loan at an unconsolidated property that was originated by Fund V at acquisition with the aforementioned $36.0 million mortgage loan at an unconsolidated property.

### Economic and Other Considerations

The year ended December 31, 2022 and quarter ended March 31, 2023 were impacted by significant volatility in global markets, largely driven by rising inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple bank failures. The rate hikes enacted by the Federal Reserve have had a significant impact on interest rate indexes such as LIBOR, SOFR and the Prime Rate and cost of borrowing. We manage our exposure to fluctuations in interest rates primarily through the use of fixed-rate debt and interest rate swap and cap agreements. We believe we manage our properties in a cost-conscious manner to minimize recurring operational expenses and utilize multi-year contracts to alleviate the impact of inflation on our business and our tenants. We also continue to see consumer confidence and we expect to continue to add value to our portfolio by executing on our current leasing momentum, our active development and redevelopment projects, and leasing pipeline. Except for increased interest costs, we have not experienced any material negative impacts at this time and we intend to actively manage our business to respond to the ongoing economic and social impact from such events.

On April 23, 2023, Bed Bath and Beyond, Inc. (”Bed Bath and Beyond”) filed Chapter 11 bankruptcy protection causing them to reject their leases at several of our properties. Bed Bath and Beyond’s leases represent two locations within our Core Portfolio and three locations in our Fund Portfolio, with aggregate GLA of 124,432 square feet and 59,391 square feet, representing 2.1% and 0.7% of Core and Fund GLA, respectively. During the quarter ended March 31, 2023, we signed a new 15-year lease for the entirety of Bed Bath and Beyond store at one of the locations in the Core Portfolio. While our exposure in the Fund portfolio is limited, and we have not experienced any material negative impacts at this time, the bankruptcy of any of our tenants, which may cause them to reject their leases, or not to renew their leases as they expire, could have an adverse effect on our cash flows or property values.

### RESULTS OF OPERATIONS

See Note 12 in the Notes to Consolidated Financial Statements for an overview of our three reportable segments.

### Comparison of Results for the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

The results of operations by reportable segment for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 are summarized in the table below (in millions, totals may not add due to rounding):

|  | Three Months Ended March 31, 2023 Core | Funds | SF | Total | Three Months Ended March 31, 2022 Core | Funds | SF | Total | Increase (Decrease) Core | Funds | SF | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $49.8 | $32.0 | $— | $81.8 | $48.4 | $33.2 | $— | $81.5 | $1.4 | $(1.2) | $— | $0.3 |
| Depreciation and amortization | (18.7) | (14.5) | — | (33.2) | (17.7) | (16.0) | — | (33.7) | 1.0 | (1.5) | — | (0.5) |
| Property operating expenses and real estate taxes | (16.1) | (10.5) | — | (26.6) | (14.6) | (10.0) | — | (24.6) | 1.5 | 0.5 | — | 2.0 |
| General and administrative expenses | — | — | — | (9.9) | — | — | — | (11.9) | — | — | — | (2.0) |
| Gain on disposition of properties | — | — | — | — | — | 28.8 | — | 28.8 | — | (28.8) | — | (28.8) |
| **Operating income** | 15.0 | 7.0 | — | 12.1 | 16.0 | 35.9 | — | 40.0 | (1.0) | (28.9) | — | (27.9) |
| Interest and other income | — | — | 4.8 | 4.8 | — | — | 2.9 | 2.9 | — | — | 1.9 | 1.9 |
| Realized and unrealized holding gains on investments and other | 1.5 | 25.0 | 0.3 | 26.8 | 1.2 | 14.6 | — | 15.7 | 0.3 | 10.4 | 0.3 | 11.1 |
| Equity in (losses) earnings of unconsolidated affiliates | 1.8 | (1.8) | — | — | 1.6 | 1.5 | — | 3.1 | 0.2 | (3.3) | — | (3.1) |
| Interest expense | (10.7) | (10.9) | — | (21.6) | (7.6) | (10.3) | — | (17.9) | 3.1 | 0.6 | — | 3.7 |
| Income tax (provision) benefit | — | — | — | (0.1) | — | — | — | 0.2 | — | — | — | (0.3) |
| **Net income** | 7.6 | 19.3 | 5.1 | 22.0 | 11.2 | 41.7 | 2.9 | 44.1 | (3.6) | (22.4) | 2.2 | (22.1) |
| Net loss attributable to redeemable noncontrolling interests | — | 2.1 | — | 2.1 | — | — | — | — | — | 2.1 | — | 2.1 |
| Net income attributable to noncontrolling interests | (0.9) | (9.8) | — | (10.7) | (1.1) | (26.1) | — | (27.3) | 0.2 | 16.3 | — | 16.6 |
| **Net income attributable to Acadia** | $6.7 | $11.6 | $5.1 | $13.4 | $10.1 | $15.6 | $2.9 | $16.8 | $(3.4) | $(4.0) | $2.2 | $(3.4) |

#### Core Portfolio

The results of operations for our Core Portfolio segment are depicted in the table above under the headings labeled “Core.” Segment net income attributable to Acadia for our Core Portfolio decreased $3.4 million for the three months ended March 31, 2023 compared to the prior year period as a result of the changes further described below.

Revenues for our Core Portfolio increased $1.4 million for the three months ended March 31, 2023 compared to the prior year period primarily due to (i) a $2.5 million increase from Core Portfolio property acquisitions in 2022 (Note 2), and (ii) $1.1 million from lease up within the Core Portfolio. These increases were offset by (i) a $1.2 million credit loss benefit in 2022 related to the conversion of tenants from cash to accrual basis, and (ii) a $0.7 million increase in tenant credit loss in 2023.

Depreciation and amortization for our Core Portfolio increased $1.0 million for the three months ended March 31, 2023 compared to the prior year period primarily due to Core Portfolio property acquisitions in 2022 (Note 2).

Property operating expenses and real estate taxes for our Core Portfolio increased $1.5 million for the three months ended March 31, 2023 compared to the prior year period primarily due to an increase in non-recurring repair and maintenance in 2023.

Interest expense for our Core Portfolio increased $3.1 million for the three months ended March 31, 2023 compared to the prior year period primarily due to higher average interest rates in 2023 (Note 7).

#### Funds (all amounts below are consolidated amounts and are not representative of our proportionate share)

The results of operations for our Funds segment are depicted in the table above under the headings labeled “Funds.” Segment net income attributable to Acadia for the Funds decreased $4.0 million for the three months ended March 31, 2023 compared to the prior year period as a result of the changes described below.

Revenues for the Funds decreased $1.2 million for the three months ended March 31, 2023 compared to the prior year period primarily due to (i) a $2.4 million decrease from Fund property dispositions in 2022 (Note 2), and (ii) a $0.5 million credit loss benefit related to the conversion of tenants from cash to accrual basis in 2022. These decreases were partially offset by an increase of a $1.8 million related to tenant lease up within the Funds in 2023.

Depreciation and amortization for the Funds decreased $1.5 million for the three months ended March 31, 2023 compared to the prior year period primarily due to Fund property dispositions in 2022.

Gain on disposition of properties for the Funds decreased $28.8 million for the three months ended March 31, 2023 compared to the prior year period due to the sale of Cortlandt Crossing at Fund III, Mayfair and Dauphin Plaza at Fund IV and New Towne parcel at Fund V in 2022 (Note 2).

Realized and unrealized holding gains on investments and other for the Funds increased $10.4 million for the three months ended March 31, 2023 compared to the prior year period primarily due to a $28.2 million increase in dividend income from Albertsons in 2023. This increase was offset by (i) a $12.6 million increase in the mark-to-market adjustment on the Investment in Albertsons in 2022, (ii) a $2.0 million decrease in the mark-to-market adjustment on the Investment in Albertsons in 2023, and (iii) a $1.4 million distribution from the Storage Post Management Company in 2022.

Equity in (losses) earnings of unconsolidated affiliates for the Funds decreased $3.3 million for the three months ended March 31, 2023 compared to the prior year period primarily due to new unconsolidated Fund acquisitions in 2022 and 2023 (Note 4).

Net loss attributable to redeemable noncontrolling interests for the Funds increased $2.1 million for the three months ended March 31, 2023 compared to the prior year period due to the City Point Loan in August 2022 (Note 10).

Net income attributable to noncontrolling interests for the Funds increased $16.3 million for the three months ended March 31, 2023 compared to the prior year period based on the noncontrolling interests’ share of the variances discussed above. Net income attributable to noncontrolling interests in the Funds includes asset management fees earned by the Company of $2.5 million and $2.4 million for the three months ended March 31, 2023 and 2022, respectively.

#### Structured Financing

Interest and other income for the Structured Financing portfolio increased $1.9 million for the three months ended March 31, 2023 compared to the prior year period primarily due to new loans issued during 2022 (Note 3).

#### Unallocated

The Company does not allocate general and administrative expenses and income taxes to its reportable segments. These unallocated amounts are depicted in the table above under the headings labeled “Total.” Unallocated general and administrative expense decreased $2.0 million for the three months ended March 31, 2023 compared to the prior year period primarily due to $2.0 million related to acquisition costs incurred in the prior year but not in the current period (Note 2).

### NON-GAAP FINANCIAL MEASURES

### Net Property Operating Income

The following discussion of net property operating income (“NOI”) and rent spreads on new and renewal leases includes the activity from both our consolidated and our pro-rata share of unconsolidated properties within our Core Portfolio. Our Funds invest primarily in properties that typically require significant leasing and development. Given that the Funds are finite-life investment vehicles, these properties are sold following stabilization. For these reasons, we believe NOI and rent spreads are not meaningful measures for our Fund investments.

NOI represents property revenues less property expenses. We consider NOI and rent spreads on new and renewal leases for our Core Portfolio to be appropriate supplemental disclosures of portfolio operating performance due to their widespread acceptance and use within the REIT investor and analyst communities. NOI and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance, however, our method of calculating these may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.

A reconciliation of consolidated operating income to net operating income - Core Portfolio follows (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Consolidated operating income | $12,108 | $40,042 |
| Add back: |  |  |
| General and administrative | 9,946 | 11,937 |
| Depreciation and amortization | 33,173 | 33,713 |
| Less: |  |  |
| Above/below-market rent, straight-line rent and other adjustments (a) | (2,242) | (6,757) |
| Gain on disposition of properties | — | (28,815) |
| Consolidated NOI | 52,985 | 50,120 |
| Redeemable noncontrolling interest in consolidated NOI | (1,217) | — |
| Noncontrolling interest in consolidated NOI | (14,475) | (15,877) |
| Less: Operating Partnership's interest in Fund NOI included above | (5,037) | (3,844) |
| Add: Operating Partnership's share of unconsolidated joint ventures NOI (b) | 3,959 | 3,641 |
| NOI - Core Portfolio | $36,215 | $34,040 |

a) Includes straight-line rent reserves. See Note 11 for additional information about straight-line rent reserves and adjustments for the periods presented.

b) Does not include the Operating Partnership’s share of NOI from unconsolidated joint ventures within the Funds.

Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties that we acquired, sold or expected to sell, redeveloped and developed during these periods. The following table summarizes Same-Property NOI for our Core Portfolio (in thousands):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Core Portfolio NOI | $36,215 | $34,040 |
| Less properties excluded from Same-Property NOI | (8,031) | (7,688) |
| Same-Property NOI | $28,184 | $26,352 |
| Percent change from prior year period | 7.0% |  |
| Components of Same-Property NOI: |  |  |
| Same-Property Revenues | $40,808 | $38,467 |
| Same-Property Operating Expenses | (12,624) | (12,115) |
| Same-Property NOI | $28,184 | $26,352 |

48

### Rent Spreads on Core Portfolio New and Renewal Leases

The following table summarizes rent spreads on both a cash basis and straight-line basis for new and renewal leases based on leases executed within our Core Portfolio for the periods presented. Cash basis represents a comparison of rent most recently paid on the previous lease as compared to the initial rent paid on the new lease. Straight-line basis represents a comparison of rents as adjusted for contractual escalations, abated rent, and lease incentives for the same comparable leases. The table below includes embedded option renewals for which the renewed rent was equal to or approximated existing base rent.

| Core Portfolio New and Renewal Leases | Three Months Ended March 31, 2023 Cash Basis | Straight- Line Basis |
| --- | ---: | ---: |
| Number of new and renewal leases executed | 17 | 17 |
| GLA commencing | 54,551 | 54,551 |
| New base rent | $31.44 | $32.88 |
| Expiring base rent | $28.61 | $26.89 |
| Percent growth in base rent | 9.9% | 22.3% |
| Average cost per square foot (a) | $2.54 | $2.54 |
| Weighted average lease term (years) | 4.8 | 4.8 |

(a) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.

### Funds from Operations

We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be an appropriate supplemental disclosure of operating performance due to its widespread acceptance and use within the REIT investor 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 the operating performance, such as gains (losses) from sales of depreciated property, depreciation and amortization, and impairment of real estate. 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 available to fund all cash needs, including distributions. It 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. Consistent with the NAREIT definition, we define FFO as net income (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated property and impairment of depreciable real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Also consistent with NAREIT’s definition of FFO, the Company has elected to include gains and losses incidental to its main business (including those related to its RCP investments, such as Albertsons) in FFO. A reconciliation of net (loss) income attributable to Acadia to FFO follows (dollars in thousands, except per share amounts):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income attributable to Acadia | $13,360 | $16,838 |
| Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests' share) | 26,444 | 24,313 |
| Gain on disposition of properties (net of noncontrolling interests' share) | — | (6,876) |
| Income attributable to Common OP Unit holders | 794 | 998 |
| Distributions - Preferred OP Units | 123 | 123 |
| Funds from operations attributable to Common Shareholders and Common OP Unit holders - Basic | $40,721 | $35,396 |
| **Funds From Operations per Share - Diluted** |  |  |
| Basic weighted-average shares outstanding, GAAP earnings | 95,189,490 | 93,285,565 |
| Weighted-average OP Units outstanding | 6,885,106 | 5,314,108 |
| Basic weighted-average shares and OP Units outstanding, FFO | 102,074,596 | 98,599,673 |
| Assumed conversion of Preferred OP Units to Common Shares | 463,898 | 464,623 |
| Assumed conversion of LTIP units and Restricted Share Units to Common Shares | 858 | 311,878 |
| Diluted weighted-average number of Common Shares and Common OP Units outstanding, FFO | 102,539,352 | 99,376,174 |
| Diluted Funds from operations, per Common Share and Common OP Unit | $0.40 | $0.36 |

50

### LIQUIDITY AND CAPITAL RESOURCES

### Uses of Liquidity and Cash Requirements

Generally, our principal uses of liquidity are (i) distributions to our shareholders and OP unit holders, (ii) investments, which include the funding of our capital committed to the Funds and property acquisitions and development/re-tenanting activities within our Core Portfolio, (iii) distributions to our Fund investors, (iv) debt service and loan repayments and (v) share repurchases.

### Distributions

In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income to our shareholders. During the three months ended March 31, 2023, we paid dividends and distributions on our Common Shares and Preferred OP Units totaling $17.1 million.

### Investments

During the three months ended March 31, 2023, Fund V acquired one unconsolidated property, Mohawk Commons, located in Schenectady, New York, for $62.1 million, inclusive of transaction costs (Note 4).

### Structured Financing Investments

During the three months ended March 31, 2023, we funded $2.0 million of a $12.8 million construction loan commitment to an unconsolidated venture (Note 4).

### Capital Commitments

During the three months ended March 31, 2023, we made capital contributions aggregating $7.9 million to our Funds. At March 31, 2023, our share of the remaining capital commitments to our Funds aggregated $36.9 million as follows:

- $0 to Fund II – During August 2020, a recallable distribution of $15.7 million was made by Mervyns II to its investors, of which our share was $4.5 million. During 2021 and 2022, Mervyns II recalled $11.9 million and $3.8 million, respectively, of the $15.7 million, of which our share is $3.4 million and $1.2 million, respectively.
- $0.5 million to Fund III – Fund III was launched in May 2007 with total committed capital of $450.0 million, of which our original share was $89.6 million. During 2015, we acquired an additional interest, which had an original capital commitment of $20.9 million.
- $9.7 million to Fund IV – Fund IV was launched in May 2012 with total committed capital of $530.0 million, of which our original share was $122.5 million.
- $26.7 million to Fund V – Fund V was launched in August 2016 with total committed capital of $520.0 million, of which our original share was $104.5 million.

### Development Activities

During the three months ended March 31, 2023, capitalized costs associated with development activities totaled $3.2 million (Note 2). At March 31, 2023, we had a total of nine consolidated and one unconsolidated project under development or redevelopment, for which the estimated total cost to complete these projects through 2025 was $49.0 million to $66.2 million, and our estimated share was approximately $28.8 million to $38.3 million. Substantially all remaining development and redevelopment costs are discretionary, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022.

### Debt

A summary of our consolidated debt, which includes the full amount of Fund related obligations and excludes our pro rata share of debt at our unconsolidated subsidiaries, is as follows (in thousands):

|  | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Total Debt - Fixed and Effectively Fixed Rate | $1,383,725 | $1,440,773 |
| Total Debt - Variable Rate | 374,408 | 364,641 |
|  | 1,758,133 | 1,805,414 |
| Net unamortized debt issuance costs | (11,844) | (12,697) |
| Unamortized premium | 317 | 343 |
| Total Indebtedness | $1,746,606 | $1,793,060 |

As of March 31, 2023, our consolidated indebtedness aggregated $1,758.1 million, excluding unamortized premium of $0.3 million and net unamortized loan costs of $11.8 million, and were collateralized by 32 properties and related tenant leases. Stated interest rates on our outstanding indebtedness ranged from 3.35% to LIBOR + 3.65% with maturities that ranged from April 28, 2023 to April 15, 2035, without regard to available extension options. With respect to the debt maturing in April and May 2023, we have refinanced two Fund mortgages and extended the Fund V subscription line, and we are actively pursuing refinancing the remaining obligations (Note 16), though there can be no assurance that we can refinance on favorable terms or at all. Taking into consideration $1,207.5 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,383.7 million of the portfolio debt, or 78.7%, was fixed at a 4.42% weighted-average interest rate and $374.4 million, or 21.3% was floating at a 6.64% weighted average interest rate as of March 31, 2023. Our variable-rate debt includes $144.5 million of debt subject to interest rate caps.

Without regard to available extension options, at March 31, 2023 there was $283.6 million of debt maturing in 2023 at a weighted-average interest rate of 6.52%; there was $5.1 million of scheduled principal amortization due in the remainder of 2023; and our share of scheduled remaining 2023 principal payments and maturities on our unconsolidated debt was $46.8 million. In addition, $251.5 million of our total consolidated debt and $45.0 million of our pro-rata share of unconsolidated debt will come due in 2024. With respect to the debt maturing in 2023 and 2024, we have options to extend consolidated debt aggregating $1.8 million and $0.0 million at March 31, 2023, respectively; however, there can be no assurance that the Company will be able to successfully execute any or all of its available extension options. For the remaining indebtedness, 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; however, there can be no assurance that we will be able to obtain financing on acceptable terms or at all. Our ability to obtain financing could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022.

### Share Repurchase Program

We maintain a share repurchase program under which $122.5 million remains available as of March 31, 2023 (Note 10). We did not repurchase any shares under this program during the three months ended March 31, 2023.

### Sources of Liquidity

Our primary sources of capital for funding our short-term (less than 12 months) and long-term (12 months and longer) liquidity needs include (i) the issuance of both public equity and OP Units, (ii) the issuance of both secured and unsecured debt, (iii) unfunded capital commitments from noncontrolling interests within our Funds, (iv) future sales of existing properties, (v) repayments of structured financing investments, (vi) liquidation of marketable securities, and (vii) cash on hand and future cash flow from operating activities. Our cash on hand in our consolidated subsidiaries at March 31, 2023 totaled $17.1 million. Our remaining sources of liquidity are described further below.

### ATM Program

We have an ATM Program (Note 10) that provides us with an efficient and low-cost vehicle for raising capital through public equity issuances on an as-we-go basis to fund our capital needs. Through this program, we have been able to effectively “match-fund” the required capital for our Core Portfolio and our share of Fund acquisitions through the issuance of Common Shares over extended periods employing a price averaging strategy. In addition, from time to time, we have issued and may issue, equity in follow-on offerings separate from our ATM Program. Net proceeds raised through our ATM Program and follow-on offerings are primarily used for acquisitions, both for our Core Portfolio and our pro-rata share of Fund acquisitions, and for general corporate purposes. We did not make any sales under the ATM program during the three months ended March 31, 2023.

### Fund Capital

During the three months ended March 31, 2023, Fund V called for capital contributions of $39.1 million, of which our aggregate share was $7.9 million. At March 31, 2023, unfunded capital commitments from noncontrolling interests within Funds II, III, IV and V were zero, $1.4 million, $32.2 million and $106.3 million, respectively.

### Other Transactions

During the three months ended March 31, 2023, we recognized cash dividends totaling $28.2 million related to the special dividend received from Mervyns II investment in Albertsons, of which our share was $11.3 million (Note 4). The contractual lock-up restrictions on our investment in Albertsons expired in January 2023, and we now own 1.6 million shares directly, which had a fair value of $34.2 million at March 31, 2023 (Note 4, Note 8).

### Structured Financing Repayments

During the three months ended March 31, 2023, Fund V refinanced a $31.7 million bridge loan at an unconsolidated property that was originated by Fund V at acquisition of an unconsolidated property. We also have one Structured Financing investment in the amount of $21.6 million including accrued interest (exclusive of default interest and other amounts due on the loan that have not been recognized) that previously matured and has not been repaid (Note 3).

### Financing and Debt

As of March 31, 2023, we had $218.6 million of additional capacity under existing Core Portfolio and Fund revolving debt facilities. In addition, at that date within our Core and Fund portfolios, we had 94 unleveraged consolidated properties with an aggregate carrying value of approximately $1.8 billion, although there can be no assurance that we would be able to obtain financing for these properties at favorable terms, if at all.

### Inflation and Economic Condition Considerations

The year ended December 31, 2022 and quarter ended March 31, 2023 were impacted by significant volatility in global markets, largely driven by rising inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple bank failures. Central banks have responded to rapidly rising inflation by tightening monetary policies that are likely to create headwinds to economic growth. The Federal Reserve has raised interest rates nine times since January 2022, and has signaled that further interest rate increases may be forthcoming throughout 2023 and into 2024. The rate hikes enacted by the Federal Reserve have had a significant impact on interest rate indexes such as LIBOR, SOFR and the Prime Rate. As of March 31, 2023, approximately 78.7% of our outstanding debt is fixed or effectively fixed rate with the remaining 21.3% indexed to LIBOR, SOFR or Prime plus an applicable margin per the loan agreement. As of March 31, 2023, we were counterparty to 34 interest rate swap agreements and four interest rate cap agreements, all of which qualify for and are designated as hedging instruments, which helps to alleviate the impact of rising interest rates on our operations.

We believe we manage our properties in a cost-conscious manner to minimize recurring operational expenses and utilize multi-year contracts to alleviate the impact of inflation on our business and our tenants. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. These provisions are designed to partially mitigate the impact of inflation; however, current inflation levels are much greater than the contractual rent increases we obtain from our tenant base. We also continue to see consumer confidence and we expect to continue to add value to our portfolio through executing on our current leasing momentum, our active development and redevelopment projects, and leasing pipeline.

On April 23, 2023, Bed Bath and Beyond filed Chapter 11 bankruptcy protection causing them to reject their leases at several of our properties. Bed Bath and Beyond’s leases represents two locations within our Core Portfolio and three locations in our Fund Portfolio. The bankruptcy of any of our tenants, which may cause them to reject their leases, or not to renew their leases as they expire, could have an adverse effect on our cash flows or property values.

While we have not experienced any material negative impacts at this time, we intend to actively manage our business to respond to the ongoing economic and social impact from such events. See Risk Factors in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022.

### HISTORICAL CASH FLOW

The following table compares the historical cash flow for the three months ended March 31, 2023 with the cash flow for the three months ended March 31, 2022 (in millions, totals may not add due to rounding):

|  | Three Months Ended March 31, 2023 | 2022 | Variance |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $59.4 | $26.5 | $32.9 |
| Net cash used in investing activities | (3.6) | (150.1) | 146.5 |
| Net cash (used in) provided by financing activities | (56.7) | 144.0 | (200.7) |
| (Decrease) increase in cash and restricted cash | $(0.8) | $20.5 | $(21.3) |

### Operating Activities

Net cash provided by operating activities primarily consists of cash inflows from dividend income and rental revenue, and cash outflows for property operating expenses, general and administrative expenses and interest and debt expense.

Our operating activities provided $32.9 million more cash for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to the $28.2 million dividend received from our investment in Albertsons. The remainder of the increase is attributable to an increase in cash receipts from tenants.

### Investing Activities

Net cash used in investing activities is impacted by our investments in and advances to unconsolidated affiliates, the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.

Our investing activities used $146.5 million less cash for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to (i) $164.2 million less cash used for the acquisition of properties, (ii) $71.0 million less cash used in our investments in and advances to unconsolidated affiliates, and (iii) $32.8 million more cash received from return of capital from unconsolidated affiliates. These sources of cash were primarily offset by (i) $116.6 million less cash received from the disposition of properties, and (ii) $4.6 million more cash used in development, construction, and property improvements.

### Financing Activities

Net cash used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership as well as principal and other payments associated with our outstanding indebtedness.

Our financing activities provided $200.7 million less cash during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily from (i) $111.5 million less cash provided by the sale of Common Shares, (ii) $67.9 million less cash provided by contributions from noncontrolling interests, (iii) $17.9 million less cash provided by net borrowings, and (iv) $3.7 million more cash used for dividends paid to Common Shareholders.

### OFF-BALANCE SHEET ARRANGEMENTS

We have the following investments made through joint ventures (that may include, among others, tenancy-in common and other similar investments) 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 and our share of income and loss from, but not the individual assets and liabilities, of these joint ventures.

See Note 4 in the Notes to Consolidated Financial Statements, for a discussion of our unconsolidated investments. The Operating Partnership’s pro-rata share of unconsolidated non-recourse debt related to those investments is as follows (dollars in millions):

| Investment | Operating Partnership Ownership Percentage | Pro-rata Share of Mortgage Debt | March 31, 2023 Effective Interest Rate (a) | Maturity Date |
| --- | ---: | ---: | ---: | --- |
| Eden Square | 22.8% | $5.0 | 6.98% | Jun 2023 |
| Gotham Plaza | 49.0% | 8.6 | 5.09% | Jun 2023 |
| Renaissance Portfolio | 20.0% | 32.0 | 3.81% | Aug 2023 |
| 3104 M Street | 20.0% | 0.8 | 8.00% | Jan 2024 |
| Crossroads | 49.0% | 29.7 | 3.94% | Oct 2024 |
| Tri-City Plaza (c) | 18.1% | 7.0 | 3.01% | Oct 2024 |
| Frederick Crossing (c) | 18.1% | 4.3 | 3.26% | Dec 2024 |
| Paramus Plaza (b) | 11.6% | 3.3 | 6.99% | Dec 2024 |
| Frederick County Square (c) | 18.1% | 4.0 | 4.00% | Jan 2025 |
| 840 N. Michigan Avenue | 88.4% | 65.0 | 4.36% | Feb 2025 |
| Wood Ridge Plaza (b) | 18.1% | 6.0 | 8.13% | Mar 2025 |
| 650 Bald Hill Road | 20.8% | 3.3 | 3.75% | Jun 2026 |
| La Frontera | 18.1% | 10.0 | 6.11% | Jun 2027 |
| Family Center at Riverdale | 18.0% | 6.7 | 6.50% | Nov 2027 |
| Georgetown Portfolio | 50.0% | 7.4 | 4.72% | Dec 2027 |
| Mohawk Commons | 18.1% | 7.2 | 5.80% | Mar 2028 |
| Shoppes at South Hills | 18.1% | 5.8 | 5.95% | Mar 2028 |
| Total |  | $206.1 |  |  |

(a) Effective interest rates incorporate the effect of interest rate swaps and caps that were in effect at March 31, 2023, where applicable.

(b) The debt has one available 12-month extension option.

(c) The debt has two available 12-month extension options.

### 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 U.S. 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. We base our 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 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 2022 Annual Report on Form 10-K.

### Recently Issued and Adopted Accounting Pronouncements

Reference is made to Note 1 for information about recently issued accounting pronouncements.

## Market risk

As filed, 7,950 characters.

### Information as of March 31, 2023

Our primary market risk exposure is to changes in interest rates related to our mortgage and other debt. See Note 7 in the Notes to Consolidated Financial Statements, for certain quantitative details related to our mortgage 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 March 31, 2023, we had total mortgage and other notes payable of $1,758.1 million, excluding the unamortized premium of $0.3 million and net unamortized debt issuance costs of $11.8 million, of which $1,383.7 million, or 78.7% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $374.4 million, or 21.3%, was variable-rate based upon LIBOR, SOFR or Prime rates plus certain spreads. As of March 31, 2023, we were party to 34 interest rate swaps and four interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $1,207.5 million and $144.5 million of variable-rate debt, respectively. For a discussion of the risks associated with the discontinuation of LIBOR, see Item 1A. “Risk Factors—Risks Related to Our Liquidity and Indebtedness on our Annual Report on Form 10-K for the year ended December 31, 2022 — If we decided to employ higher leverage levels, we would be subject to increased debt service requirements and a higher risk of default on our debt obligations, which could adversely affect our financial conditions, cash flows and ability to make distributions to our shareholders. In addition, increases or changes in interest rates could cause our borrowing costs to rise and may limit our ability to refinance debt”.

The following table sets forth information as of March 31, 2023 concerning our long-term debt obligations, including principal cash flows by scheduled maturity (without regard to available extension options) and weighted average effective interest rates of maturing amounts (dollars in millions):

#### Core Consolidated Mortgage and Other Debt

| Year | Scheduled Amortization | Maturities | Total | Weighted-Average Interest Rate |
| --- | ---: | ---: | ---: | ---: |
| 2023 (Remainder) | $1.6 | $— | $1.6 | —% |
| 2024 | 1.8 | 7.3 | 9.1 | 4.7% |
| 2025 | 2.1 | 232.6 | 234.7 | 4.2% |
| 2026 | 2.4 | 400.0 | 402.4 | 4.3% |
| 2027 | 2.2 | 200.1 | 202.3 | 4.3% |
| Thereafter | 4.3 | 161.6 | 165.9 | 4.4% |
|  | $14.4 | $1,001.6 | $1,016.0 |  |

#### Fund Consolidated Mortgage and Other Debt

| Year | Scheduled Amortization | Maturities | Total | Weighted-Average Interest Rate |
| --- | ---: | ---: | ---: | ---: |
| 2023 (Remainder) | $3.5 | $283.6 | $287.1 | 6.5% |
| 2024 | 2.6 | 239.7 | 242.3 | 4.0% |
| 2025 | 0.2 | 178.4 | 178.6 | 6.4% |
| 2026 | 0.1 | 34.0 | 34.1 | 7.4% |
| 2027 | — | — | — | —% |
| Thereafter | — | — | — | —% |
|  | $6.4 | $735.7 | $742.1 |  |

#### Mortgage Debt in Unconsolidated Partnerships (at our Pro-Rata Share)

| Year | Scheduled Amortization | Maturities | Total | Weighted-Average Interest Rate |
| --- | ---: | ---: | ---: | ---: |
| 2023 (Remainder) | $1.1 | $45.7 | $46.8 | 4.4% |
| 2024 | 1.3 | 43.7 | 45.0 | 4.0% |
| 2025 | 0.6 | 74.6 | 75.2 | 4.6% |
| 2026 | 0.6 | 3.0 | 3.6 | 3.8% |
| 2027 | 0.6 | 22.6 | 23.2 | 5.8% |
| Thereafter | — | 12.3 | 12.3 | 5.9% |
|  | $4.2 | $201.9 | $206.1 |  |

Without regard to available extension options, in the remainder of 2023, $288.7 million of our total consolidated debt and $46.8 million of our pro-rata share of unconsolidated outstanding debt will become due. In addition, $251.5 million of our total consolidated debt and $45.0 million of our pro-rata share of unconsolidated debt will become due in 2024. As it relates to the aforementioned maturing debt in 2023 and 2024, we have options to extend consolidated debt aggregating $1.8 million and $0.0 million, respectively; however, there can be no assurance that the Company will be able successfully execute any or all of its available extension options. 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 rates, our interest expense would increase by approximately $6.3 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 $1.2 million. Interest expense on our variable-rate debt of $374.4 million, net of variable to fixed-rate swap agreements currently in effect, as of March 31, 2023, would increase $3.7 million if corresponding rate indices increased by 100 basis points. After giving effect to noncontrolling interests, our share of this increase would be $1.3 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.

Based on our outstanding debt balances as of March 31, 2023, the fair value of our total consolidated outstanding debt would decrease by approximately $5.5 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding debt would increase by approximately $4.8 million.

As of March 31, 2023, and December 31, 2022, we had consolidated notes receivable of $124.0 million and $123.9 million, respectively. We determined the estimated fair value of our notes receivable by discounting future cash receipts utilizing a discount rate equivalent to the rate at which similar notes receivable would be originated under conditions then existing.

Based on our outstanding notes receivable balances as of March 31, 2023, the fair value of our total outstanding notes receivable would decrease by approximately $2.6 million if interest rates increase by 1%. Conversely, if interest rates decrease by 1%, the fair value of our total outstanding notes receivable would increase by approximately $0.4 million.

### Summarized Information as of December 31, 2022

As of December 31, 2022, we had total mortgage and other notes payable of $1,805.4 million, excluding the unamortized premium of $0.3 million and unamortized debt issuance costs of $12.7 million, of which $1,440.8 million, or 79.8% was fixed-rate, inclusive of debt with rates fixed through the use of derivative financial instruments, and $364.6 million, or 20.2%, was variable-rate based upon LIBOR rates plus certain spreads. As of December 31, 2022, we were party to 36 interest rate swap and three interest rate cap agreements to hedge our exposure to changes in interest rates with respect to $1,264.0 million and $103.8 million of LIBOR or SOFR-based variable-rate debt, respectively.

Interest expense on our variable-rate debt of $364.6 million as of December 31, 2022, would have increased $3.6 million if corresponding rate indices increased by 100 basis points. Based on our outstanding debt balances as of December 31, 2022, the fair value of our total outstanding debt would have decreased by approximately $0.4 million if interest rates increased by 1%. Conversely, if interest rates decreased by 1%, the fair value of our total outstanding debt would have increased by approximately $2.6 million.

### Changes in Market Risk Exposures from December 31, 2022 to March 31, 2023

Our interest rate risk exposure from December 31, 2022, to March 31, 2023, has increased on an absolute basis, as the $364.4 million of variable-rate debt as of December 31, 2022 has increased to $374.4 million as of March 31, 2023. As a percentage of our overall debt, our interest rate exposure has increased as our variable-rate debt accounted for 20.2% of our unconsolidated debt as of December 31, 2022 compared to 21.3% as of March 31, 2023.

## Controls and procedures

As filed, 1,510 characters.

### Disclosure Controls and Procedures

Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls. Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of March 31, 2023, at a reasonable level of assurance.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 446 characters.

Except to the extent additional factual information disclosed elsewhere in this Report relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed May 5, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-018306. Last ingested by Listed: Nov 2, 2026, 18:43 ET. No prices; not investment advice.