Investments In and Advances to Unconsolidated Affiliates

Core Portfolio

The Company owns a 22.2% interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio”) located in Wilmington, Delaware and a 49% interest in a 311,000 square foot shopping center located in White Plains, New York (“Crossroads”). These investments are accounted for under the equity method.

During September 2011, the Company acquired a 50% equity interest in the Georgetown Portfolio (Note 2). The unaffiliated venture partner for the Georgetown Portfolio maintains control over this investment and, as such, the Company accounts for this investment under the equity method. Due to this acquisition, the Company reclassified an existing $8.0 million mezzanine loan collateralized by five properties within the Georgetown Portfolio from Notes Receivable to Investments in and Advances to Unconsolidated Affiliates.

Opportunity Funds

RCP Venture

The Company, along with Klaff Realty, LP (“Klaff”) and Lubert-Adler Management, Inc. ("Lubert-Adler"), formed an investment group, the RCP Venture, for the purpose of making investments in surplus or underutilized properties owned by retailers. The RCP Venture is neither a single entity nor a specific investment. Any member of this group has the option of participating, or not, in any individual investment and each individual investment has been made on a stand-alone basis through a separate limited liability company (“LLC”). These investments have been made through different investment vehicles with different affiliated and unaffiliated investors and different economics to the Company. Investments under the RCP Venture are structured as separate joint ventures as there may be other investors participating in certain investments in addition to Klaff, Lubert-Adler and Acadia. 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 December 31, 2011, the Acadia Investors have made investments in Mervyns Department Stores (“Mervyns”) and Albertson’s, 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”).

Mervyns Department Stores

Through Mervyns I and Mervyns II, the Company invested in a consortium to acquire Mervyns, consisting of 262 stores (“REALCO”) and its retail operations (“OPCO”), from Target Corporation. The Company’s share of this investment was $23.2 million. Subsequent to the initial acquisition, the Company, through Mervyns I and Mervyns II, made additional investments of $2.9 million. Through December 31, 2011, REALCO has disposed of a significant portion of the portfolio. In addition, in November 2007, the Company sold its interest in OPCO and, as a result, has no further investment in OPCO. Through December 31, 2011, the Company has received distributions from this investment totaling $46.0 million.

Through December 31, 2011, the Company, through Mervyns I and Mervyns II, made Add-On Investments in Mervyns totaling $6.5 million and have received distributions totaling $3.6 million, including $1.9 million received in 2011.

Albertson’s

The RCP Venture made its second investment as part of an investment consortium, acquiring Albertson’s and Cub Foods, of which the Company’s share was $20.7 million. Through December 31, 2011, the Company has received distributions from this investment totaling $81.6 million, including $4.5 million and $11.4 million received in 2011 and 2010, respectively.

Through December 31, 2011, the Company, through Mervyns II, made Add-On Investments in Albertson’s totaling $2.4 million and received distributions totaling $1.7 million, including $0.5 million received in 2011.

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In and Advances to Unconsolidated Affiliates, continued

Other RCP Investments

Through December 31, 2011, the Company, through Fund II, made investments of $1.1 million in Shopko, $0.7 million in Marsh, and $2.0 million in Add-On Investments in Marsh. As of December 31, 2011, the Company has received distributions totaling $1.7 million from its Shopko investment and $2.6 million from its Marsh and Marsh Add-On Investments.

During July of 2007, the RCP Venture acquired a portfolio of 87 retail properties from Rex Stores Corporation, which the Company invested through Mervyns II. The Company’s share of this investment was $2.7 million. As of December 31, 2011, the Company has received distributions totaling $0.8 million.

The following table summarizes activity related to the RCP Venture investments from inception through December 31, 2011:



						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	6,517		3,558		1,046		819
Albertsons	2006	20,717		81,594		4,239		16,318
Albertsons Add-On investments	2006/2007	2,416		1,679		388		336
Shopko	2006	1,108		1,659		222		332
Marsh and Add-On investments	2006/2008	2,667		2,639		533		528
Rex Stores	2007	2,701		840		535		168
Total		$	62,184	$	137,935	$	11,864	$	29,752

The Company accounts for the original investments in Mervyns and Albertson’s under the equity method of accounting as the Company has the ability to exercise significant influence, but does not have financial or operating control.

The Company accounts for the Add-On Investments and Other RCP Investments under the cost method. Due to its minor ownership interest, based on the size of the investments as well as the terms of the underlying operating agreements, the Company has no influence over such entities' operating and financial policies. Other than the minority investor rights to which the Company is entitled pursuant to statute, it has no rights other than to receive its pro-rata share of cash distributions as declared by the managers of the Add-On Investments and Other RCP Investments. The Company has no rights with respect to the control and operation of these investment vehicles, nor with the formulation and execution of business and investment policies.

The Acadia Investors have non-controlling interests in the individual investee LLC’s as follows:



			Acadia Investors Ownership % in:
Investment	Investee LLC	Acadia Investors Entity	Investee LLC	Underlying entity(s)
Mervyns	KLA/Mervyn's, L.L.C	Mervyns I and Mervyns II	10.5%	5.8%
Mervyns Add-On Investments	KLA/Mervyn's, L.L.C	Mervyns I and Mervyns II	10.5%	5.8%
Albertsons	KLA A Markets, LLC	Mervyns II	18.9%	5.7%
Albertsons Add-On Investments	KLA A Markets, LLC	Mervyns II	20.0%	6.0%
Shopko	KA-Shopko, LLC	Fund II	20.0%	2.0%
Marsh and Add-On Investments	KA Marsh, LLC	Fund II	20.0%	3.3%
Rex Stores	KLAC Rex Venture, LLC	Mervyns II	13.3%	13.3%

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In and Advances to Unconsolidated Affiliates continued

Other Opportunity Fund Investments

Fund I Investments

Fund I owned a 50% interest in the Sterling Heights Shopping Center, which was accounted for under the equity method of accounting. During the year ended December 31, 2009, Fund I recorded an impairment reserve of $3.8 million related to this investment. On March 25, 2010, the Sterling Heights Shopping Center was sold for $2.3 million. The proceeds from this sale together with the balance of Fund I’s recourse obligation of $0.6 million were used to fully liquidate the outstanding mortgage loan obligation.

Fund II Investments

Prior to June 30, 2010, Fund II had a 24.75% interest in CityPoint, a redevelopment project located in downtown Brooklyn, NY, which was accounted for under the equity method. On June 30, 2010, Fund II acquired the remaining interest in the project from its unaffiliated partner and, as a result, consolidates the CityPoint investment. (Note 2 -"Fund II").

Fund III Investments

The unaffiliated venture partners for the Lincoln Road (Note 2), White Oak (Note 2), Parkway Crossing (Note 2) and the White City Shopping Center (Note 2) investments maintain control over these entities and, as such, the Company accounts for these investments under the equity method.

During June 2010, Fund III, in a joint venture with an unaffiliated partner, invested in an entity for the purpose of providing management services to owners of self-storage properties, including the 14 locations currently owned through Fund II and Fund III. Fund III has a 50% interest in the entity. This entity was determined to be a variable interest entity for which the Company was determined not to be the primary beneficiary. As such, the Company accounts for this investment under the equity method.

Summary of Investments in Unconsolidated Affiliates

The following combined and condensed Balance Sheets and Statements of Operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates.



(dollars in thousands)	December 31, 2011			December 31, 2010
Combined and Condensed Balance Sheets
Assets:
Rental property, net	$	280,470		$	186,802
Investment in unconsolidated affiliates	156,421			192,002
Other assets	29,587			27,841
Total assets	$	466,478		$	406,645
Liabilities and partners’ equity:
Mortgage notes payable	$	319,425		$	267,565
Other liabilities	16,902			13,815
Partners’ equity	130,151			125,265
Total liabilities and partners’ equity	$	466,478		$	406,645
Company’s investment in and advances to unconsolidated affiliates	$	84,568		$	31,036
Company's share of distributions in excess of share of income and investments in unconsolidated affiliates	$	(21,710	)	$	(20,884	)

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In and Advances to Unconsolidated Affiliates, continued

Summary of Investments in Unconsolidated Affiliates, continued



	Years Ended December 31,
(dollars in thousands)	2011			2010			2009
Combined and Condensed Statements of Operations
Total revenues	$	42,185		$	29,460		$	30,835
Operating and other expenses	15,924			10,617			9,851
Interest expense	17,099			13,525			13,786
Equity in earnings (losses) of unconsolidated affiliates	7,243			56,482			(30,568		)
Depreciation and amortization	8,837			4,839			5,152
Loss on sale of property, net	—			(2,957		)	(390		)
Net income (loss)	$	7,568		$	54,004		$	(28,912	)

Company’s share of net income (loss)	$	1,946		$	11,363		$	(1,141	)
Impairment loss	—			—			(3,768		)
Amortization of excess investment	(391		)	(392		)	(388		)
Company’s equity in earnings (losses) of unconsolidated affiliates	$	1,555		$	10,971		$	(5,297	)