# ACADIA REALTY TRUST (AKR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ACADIA REALTY TRUST's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/899629/000095017024016567/akr-20231231.htm
Accession: 0000950170-24-016567
Filing date: 2024-02-16
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/AKR/
All MD&A years: /company/AKR/mda/
Previous year: /company/AKR/mda/fy2022/ (FY 2022)
Next year: /company/AKR/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

As of December 31, 2023, there were 201 properties, which we own or have an ownership interest in, within 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. See Item 2. Properties for a summary of our wholly-owned and partially-owned retail properties and their physical occupancies at December 31, 2023.

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. 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. We target transactions with high inherent opportunity for the creation of additional value through:

o
value-add investments in street retail properties, located in established and “next generation” submarkets, with re-tenanting or repositioning opportunities,

o
opportunistic acquisitions of well-located real-estate anchored by distressed retailers, and

o
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.

Inflation and Economic Condition Considerations

The economy continues to face several issues including geopolitical conditions and instability, the Gaza-Israel conflict, the war in Ukraine, the fallout from the COVID-19 Pandemic, supply-chain disruptions, and the recessionary outlook of the current financial markets, which has increased volatility in the market and has caused a surge in interest rates in a period of high inflation. While we have not experienced any material negative impacts at this time, we are actively managing our business to respond to the ongoing economic and social impact from such events. 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 real estate taxes, insurance, utilities, and common area maintenance of the shopping centers, 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 greater than the contractual rent increases we obtain from our tenant base. As a result, the Company could feel pricing pressure on rents that it is able to charge to new or renewing tenants, such that future rents and rent spreads could be negatively impacted. While interest rate increases enacted by the Federal Reserve have had a significant impact on interest rate indexes such as SOFR and the Prime Rate, as of December 31, 2023, approximately 77.3%, or 86.7% at our pro-rata share, of our outstanding debt is fixed or effectively fixed interest rate, with the remaining 22.7%, or 13.3% at our pro-rata share, indexed to SOFR or Prime plus an applicable margin per the loan agreement. We were also counterparty to 36 interest rate swap agreements and four interest rate cap agreements, all of which qualify for and are designated as hedging instruments. This helps to alleviate the impact of rising interest rates on our operations. The Company continues to monitor economic, financial, and social conditions and will assess its asset portfolio for any impairment indicators. See Item 1A. Risk Factors.

43

SIGNIFICANT DEVELOPMENTS DURING THE year ended December 31, 2023 AND SUBSEQUENT EVENTS

Investments

During the year ended December 31, 2023, Fund V acquired two consolidated properties and one unconsolidated property totaling $189.3 million, inclusive of transaction costs, as described below (Note 2, Note 4).

•
On January 27, 2023, Fund V acquired a 90% interest in an unconsolidated venture for $20.2 million, which purchased a shopping center, Mohawk Commons, located in Schenectady, New York, for $62.1 million, inclusive of transaction costs. In addition, the Mohawk Commons venture entered into a $39.7 million mortgage loan.

•
On July 3, 2023, Fund V acquired a shopping center, Cypress Creek, located in Tampa, Florida, for $49.4 million, inclusive of transaction costs.

•
On November 27, 2023, Fund V acquired a shopping center, Maple Tree Place, located in Williston, Vermont, for $77.8 million, inclusive of transaction costs.

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 received 1.6 million shares of Albertsons (Note 4, Note 8). During the year ended December 31, 2023, we sold 200,000 shares of Albertsons, generating net proceeds of $4.6 million. As of December 31, 2023, we still held 1.4 million shares of Albertsons which had a fair value of $33.3 million. In January 2024, we sold an additional 175,000 shares of Albertsons, generating net proceeds of $4.0 million (Note 17).

Financing Activity

During the year ended December 31, 2023, we effected the following financing activities (Note 7, Note 4):

•
entered into a new Fund mortgage of $32.2 million;

•
modified and extended five Fund mortgages totaling $150.8 million (excluding principal reductions of $2.7 million);

•
refinanced four Fund mortgages totaling $111.4 million;

•
repaid a Fund mortgage totaling $5.8 million at maturity;

•
modified the Fund IV bridge loan with an outstanding balance of $36.2 million (excluding principal reductions of $3.0 million);

•
modified and extended five mortgages at unconsolidated properties totaling $271.6 million and restructured a $73.5 million mortgage at an unconsolidated property;

•
through Fund V, entered into a new mortgage at an unconsolidated property for $39.7 million, refinanced a $31.8 million unconsolidated mortgage loan;

•
through Fund V, modified its subscription line and extended the maturity date to February 28, 2024; and

•
made principal payments of $7.7 million.

On July 15, 2023, the 146 Geary Street, Fund IV non-recourse mortgage loan with an outstanding balance of $19.3 million, or $4.5 million at the Company’s share, matured with no further extension options and was in default (Note 7). The property securing the mortgage was a vacant building located in San Francisco, California. The loan accrued default interest at a rate of 4.00% per annum in excess of the interest rate of SOFR + 3.65%. On October 27, 2023, the Company completed the transfer of the property to its lender through a deed-in-lieu of foreclosure and derecognized the mortgage loan as it had no continuing obligations. The Company had previously impaired the asset, and recorded an impairment charge of $3.7 million, or $0.9 million at the Company’s share, related to the change in estimated value and holding period of the asset for the year ended December 31, 2023 (Note 8).

In January 2024, through Fund V, made a $3.8 million principal payment on a mortgage loan (Note 17).

44

Structured Financing Investments

During the year ended December 31, 2023, we originated a Core Portfolio note for $1.4 million collateralized by our venture’s partner’s interest in 840 N. Michigan Avenue. We also funded $5.3 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 a new mortgage loan at an unconsolidated property.

Common Share Issuances

In January 2024, we completed an underwritten offering of 6,900,000 Common Shares (inclusive of the underwriters’ option to purchase 900,000 additional shares) for net proceeds of $113.0 million (Note 17). We intend to use the net proceeds from the offering for general corporate purposes, which may include, without limitation, the repayment of outstanding indebtedness, funding future acquisitions, working capital and other general corporate purposes.

During the year ended December 31, 2023, we did not sell any shares under our ATM program.

Inflation

The year ended December 31, 2023 was 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. 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. The rate hikes enacted by the Federal Reserve have had a significant impact on interest rate indexes such as 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. Most of our leases require tenants to pay their share of operating expenses, including real estate taxes, insurance, utilities, and common area maintenance of the shopping centers. These provisions are designed to partially mitigate the impact of inflation. 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.

Tenant Bankruptcy

On April 23, 2023, Bed Bath and Beyond, Inc. (“Bed Bath and Beyond”) filed for Chapter 11 bankruptcy protection. Bed Bath and Beyond had leases at 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. In our Core Portfolio, we recaptured and re-leased one of the spaces to an existing tenant that is expanding a flagship store under a new 15-year lease. We are actively seeking a tenant for the remaining Core Portfolio location. In our Fund Portfolio, one lease was assumed by a new tenant and we have regained possession of the other two locations; we have one signed lease and identified future tenants at these two Fund locations. As a result of the bankruptcy filing, during the year ended December 31, 2023, we accelerated the amortization of the below-market lease intangibles of $8.1 million related to the Bed Bath and Beyond lease terminations. We did not experience any material negative impacts on our cash flows or property values as a result of the bankruptcy.

45

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 Year Ended December 31, 2023 to the Year Ended December 31, 2022

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

[[GREPCENT_TABLE]]
[["","","Year Ended","","","Year Ended"],["","","December 31, 2023","","","December 31, 2022","","","Increase (Decrease)"],["","","Core","","","Funds","","","SF","","","Total","","","Core","","","Funds","","","SF","","","Total","","","Core","","","Funds","","","SF","","","Total"],["Total revenues","","$","203.5","","","$","135.1","","","$","\u2014","","","$","338.7","","","$","202.5","","","$","123.7","","","$","\u2014","","","$","326.3","","","$","1.0","","","$","11.4","","","$","\u2014","","","$","12.4"],["Depreciation and amortization expenses","","","(76.6",")","","","(59.3",")","","","\u2014","","","","(136.0",")","","","(75.6",")","","","(60.3",")","","","\u2014","","","","(135.9",")","","","1.0","","","","(1.0",")","","","\u2014","","","","0.1"],["General and administrative expenses","","","\u2014","","","","\u2014","","","","\u2014","","","","(41.5",")","","","\u2014","","","","\u2014","","","","\u2014","","","","(44.1",")","","","\u2014","","","","\u2014","","","","\u2014","","","","(2.6",")"],["Property operating expenses, other operating and real estate taxes","","","(64.4",")","","","(44.1",")","","","\u2014","","","","(108.5",")","","","(60.3",")","","","(41.6",")","","","\u2014","","","","(101.9",")","","","4.1","","","","2.5","","","","\u2014","","","","6.6"],["Impairment charges","","","\u2014","","","","(3.7",")","","","\u2014","","","","(3.7",")","","","\u2014","","","","(33.3",")","","","\u2014","","","","(33.3",")","","","\u2014","","","","(29.6",")","","","\u2014","","","","(29.6",")"],["Gain on disposition of properties","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","7.2","","","","49.9","","","","\u2014","","","","57.2","","","","(7.2",")","","","(49.9",")","","","\u2014","","","","(57.2",")"],["Operating income","","","62.5","","","","28.0","","","","\u2014","","","","49.1","","","","73.9","","","","38.4","","","","\u2014","","","","68.2","","","","(11.4",")","","","(10.4",")","","","\u2014","","","","(19.1",")"],["Equity in earnings (losses) of unconsolidated affiliates","","","2.7","","","","(10.4",")","","","\u2014","","","","(7.7",")","","","(45.9",")","","","13.0","","","","\u2014","","","","(32.9",")","","","48.6","","","","(23.4",")","","","\u2014","","","","25.2"],["Interest income","","","\u2014","","","","\u2014","","","","20.0","","","","20.0","","","","\u2014","","","","\u2014","","","","14.6","","","","14.6","","","","\u2014","","","","\u2014","","","","5.4","","","","5.4"],["Realized and unrealized holding gains (losses) on investments and other","","","5.8","","","","25.0","","","","(0.3",")","","","30.4","","","","1.2","","","","(35.6",")","","","(0.6",")","","","(35.0",")","","","4.6","","","","60.6","","","","0.3","","","","65.4"],["Interest expense","","","(44.5",")","","","(48.7",")","","","\u2014","","","","(93.3",")","","","(37.9",")","","","(42.3",")","","","\u2014","","","","(80.2",")","","","6.6","","","","6.4","","","","\u2014","","","","13.1"],["Income tax provision","","","\u2014","","","","\u2014","","","","\u2014","","","","(0.3",")","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","(0.3",")"],["Net income (loss)","","","26.5","","","","(6.1",")","","","19.7","","","","(1.7",")","","","(8.8",")","","","(26.4",")","","","14.0","","","","(65.3",")","","","35.3","","","","20.3","","","","5.7","","","","63.6"],["Net loss attributable to redeemable noncontrolling interests","","","\u2014","","","","8.2","","","","\u2014","","","","8.2","","","","\u2014","","","","5.5","","","","\u2014","","","","5.5","","","","\u2014","","","","(2.7",")","","","\u2014","","","","(2.7",")"],["Net (income) loss attributable to noncontrolling interests","","","(1.9",")","","","15.3","","","","\u2014","","","","13.4","","","","1.0","","","","23.3","","","","\u2014","","","","24.3","","","","2.9","","","","8.0","","","","\u2014","","","","10.9"],["Net income (loss) attributable to Acadia","","$","24.6","","","$","17.4","","","$","19.7","","","$","19.9","","","$","(7.8",")","","$","2.4","","","$","14.0","","","$","(35.4",")","","$","32.4","","","$","15.0","","","$","5.7","","","$","55.3"]]
[[/GREPCENT_TABLE]]

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 increased $32.4 million for the year ended December 31, 2023 compared to the prior year as a result of the changes further described below.

Revenues for our Core Portfolio increased $1.0 million for the year ended December 31, 2023 compared to the prior year primarily due to (i) a $7.8 million acceleration of a below market lease for a bankrupt tenant, (ii) $6.0 million from lease up within the Core Portfolio, and (iii) a $2.8 million increase from Core Portfolio property acquisitions in 2022 (Note 2). These increases were offset by (i) $7.2 million from vacating tenants, (ii) $3.2 million from additional termination income received in 2022, (iii) a $3.2 million increase associated with revenues deemed uncollectible in 2023, and (iv) $1.2 million from Core property dispositions in 2022.

Depreciation and amortization for our Core Portfolio increased $1.0 million for the year ended December 31, 2023 compared to the prior year primarily due to Core Portfolio acquisitions in 2022.

Property operating expenses, other operating and real estate taxes for our Core Portfolio increased $4.1 million for the year ended December 31, 2023 compared to the prior year primarily due to an increase in non-recurring repairs and maintenance, utility and insurance costs in 2023.

The gain on disposition of properties for our Core Portfolio of $7.2 million for the year ended December 31, 2022 primarily relates to the sale of 330-340 River Street (Note 2).

Equity in (losses) earnings of unconsolidated affiliates for our Core Portfolio increased $48.6 million for the year ended December 31, 2023 compared to the prior year primarily due to the Company’s $50.8 million proportionate share of an impairment charge at 840 N. Michigan Avenue in 2022 (Note 4).

46

Interest expense for our Core Portfolio increased $6.6 million for the year ended December 31, 2023 compared to the prior year primarily due to (i) $6.1 million from higher average outstanding borrowings in 2023, and (ii) $1.8 million from higher average interest rates in 2023. These increases were partially offset by $1.1 million from higher capitalized interest in 2023.

Realized and unrealized holding gains (losses) on investments and other for our Core Portfolio includes (i) a $5.2 million mark-to-market adjustment on the Investment in Albertsons in 2023, and (ii) a $1.2 million bargain purchase gain on the acquisition of the Williamsburg Collection in 2022 (Note 2). In January 2023, following the expiration of the lock-up period and distribution of approximately 2.5 million shares by Mervyns II to its partners, the Company received 1.6 million shares of Albertsons, of which 1.4 million shares are included in the Core portfolio following the sale of 200,000 shares in 2023 (Note 4, Note 8).

Net loss attributable to noncontrolling interests for our Core Portfolio increased $2.9 million for the year ended December 31, 2023 compared to the prior year based on the noncontrolling interests’ share of the variances discussed above.

Funds

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 increased $15.0 million for the year ended December 31, 2023 compared to the prior year as a result of the changes described below.

Revenues for the Funds increased $11.4 million for the year ended December 31, 2023 compared to the prior year primarily due to (i) $9.0 million from new tenant lease up in 2022 and 2023, (ii) $4.3 million from Fund property acquisitions in 2023, and (iii) $2.0 million from settlement income related to a tenant. These increases were offset by (i) $4.1 million from Fund property dispositions in 2022 (Note 2).

Depreciation and amortization for the Funds decreased $1.0 million for the year ended December 31, 2023 compared to the prior year primarily due to Fund property dispositions in 2022 (Note 2).

Impairment charges for the Funds decreased $29.6 million for the year ended December 31, 2023 compared to the prior year (Note 8). Impairment charges totaled $3.7 million during 2023 for the Funds related to 146 Geary Street in Fund IV. Impairment charges totaled $33.3 million during 2022 for the Funds related to 146 Geary Street and 717 N. Michigan Avenue in Fund IV.

Property operating expenses, other operating and real estate taxes for the Funds increased $2.5 million for the year ended December 31, 2023 compared to the prior year primarily due to an increase in non-recurring repairs and maintenance, utility and insurance costs in 2023.

Gain on disposition of properties for the Funds decreased $49.9 million for the year ended December 31, 2023 compared to the prior year due to the sales of Cortlandt Crossing at Fund III, Lincoln Place, Mayfair, Dauphin and Wake Forest Crossing in Fund IV (Note 2).

Equity in (losses) earnings of unconsolidated affiliates for the Funds decreased $23.4 million for the year ended December 31, 2023 compared to the prior year due to new unconsolidated Fund acquisitions in 2022 and 2023 (Note 4) and the $12.8 million gain on sale of Promenade at Manassas in 2022.

Interest expense for the Funds increased $6.4 million for the year ended December 31, 2023 compared to the prior year primarily due to $17.3 million from higher average interest rates in 2023 offset by $9.0 million from lower average outstanding borrowings in 2023 and $1.9 million from higher capitalized interest in 2023.

Realized and unrealized holding gains (losses) on investments and other for the Funds increased $60.6 million for the year ended December 31, 2023 compared to the prior year primarily due to (i) a $28.2 million increase in dividend income from Albertsons in 2023 and (ii) a $38.9 million decrease in the mark-to-market adjustment on the Investment in Albertsons in 2022, offset by (i) a $2.0 million decrease in the mark-to-market adjustment on the Investment in Albertsons in 2023, and (ii) a $1.4 million distribution from the Storage Post Management Company in 2022. (Note 4).

Net loss attributable to redeemable noncontrolling interests for the Funds increased $2.7 million for the year ended December 31, 2023 compared to the prior year due to the City Point Loan in 2022 (Note 10).

Net loss attributable to noncontrolling interests for the Funds increased $8.0 million for the year ended December 31, 2023 compared to the prior year based on the noncontrolling interests’ share of the variances discussed above. Net loss attributable to noncontrolling interests in the Funds

47

includes asset management fees earned by the Company of $7.2 million and $9.5 million for the years ended December 31, 2023 and 2022, respectively.

Structured Financing

The results of operations for our Structured Financing segment are depicted in the table above under the headings labeled “SF.” Interest and other income for the Structured Financing portfolio increased $5.4 million for the year ended December 31, 2023 compared to the prior year period primarily due to the City Point Loan in 2022 (Note 10).

Unallocated

The Company does not allocate general and administrative expense 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 $2.6 for the year ended December 31, 2023 compared to the prior year due to $2.0 million related to acquisition costs (Note 2).

Discussions of 2021 items and comparisons between the year ended December 31, 2022 and 2021, respectively, that are not included in this Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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 Core 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 (loss) - Core Portfolio follows (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["Consolidated operating income","","$","49,076","","","$","68,230","","","$","30,656"],["Add back:"],["General and administrative","","","41,470","","","","44,066","","","","40,125"],["Depreciation and amortization","","","135,984","","","","135,917","","","","123,439"],["Impairment charges","","","3,686","","","","33,311","","","","9,925"],["Less:"],["Above/below-market rent, straight-line rent and other adjustments (a)","","","(20,617",")","","","(20,869",")","","","(19,862",")"],["Gain on disposition of properties","","","\u2014","","","","(57,161",")","","","(10,521",")"],["Consolidated NOI","","","209,599","","","","203,494","","","","173,762"],["Redeemable noncontrolling interest in consolidated NOI","","","(4,420",")","","","(1,892",")","","","\u2014"],["Noncontrolling interest in consolidated NOI","","","(59,597",")","","","(58,277",")","","","(48,795",")"],["Less: Operating Partnership's interest in Fund NOI included above","","","(19,816",")","","","(14,476",")","","","(11,608",")"],["Add: Operating Partnership's share of unconsolidated joint ventures NOI (b)","","","14,249","","","","14,381","","","","13,279"],["NOI - Core Portfolio","","$","140,015","","","$","143,230","","","$","126,638"]]
[[/GREPCENT_TABLE]]

a)
Includes straight-line rent reserves. See Note 1 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.

48

Same-Property NOI includes Core Portfolio properties that we owned for both the current and prior period presented, but excludes those properties which 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):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["Core Portfolio NOI","","$","140,015","","","$","143,230"],["Less properties excluded from Same-Property NOI","","","(26,147",")","","","(35,557",")"],["Same-Property NOI","","$","113,868","","","$","107,673"],["Percent change from prior year period","","","5.8","%"],["Components of Same-Property NOI:"],["Same-Property Revenues","","$","165,933","","","$","158,415"],["Same-Property Operating Expenses","","","(52,065",")","","","(50,742",")"],["Same-Property NOI","","$","113,868","","","$","107,673"]]
[[/GREPCENT_TABLE]]

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 period 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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2023"],["Core Portfolio New and Renewal Leases","","Cash Basis","","","Straight- Line Basis"],["Number of new and renewal leases executed","","","65","","","","65"],["GLA commencing","","","436,322","","","","436,322"],["New base rent","","$","36.42","","","$","38.11"],["Expiring base rent","","$","30.49","","","$","29.72"],["Percent growth in base rent","","","19.5","%","","","28.2","%"],["Average cost per square foot (a)","","$","16.11","","","$","16.11"],["Weighted average lease term (years)","","","6.7","","","","6.7"]]
[[/GREPCENT_TABLE]]

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

49

Funds from Operations

We consider funds from operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be meaningful non-GAAP measure 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 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 generally accepted accounting principles (“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 income attributable to Acadia to FFO follows (dollars in thousands, except per share amounts):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["Net income (loss) attributable to Acadia shareholders","","$","19,873","","","$","(35,445",")","","$","23,548"],["Depreciation of real estate and amortization of leasing costs (net of noncontrolling interests' share)","","","109,732","","","","104,910","","","","93,388"],["Impairment charges (net of noncontrolling interests' share) (a)","","","852","","","","58,481","","","","2,294"],["Gain on disposition of properties (net of noncontrolling interests' share)","","","\u2014","","","","(22,137",")","","","(4,163",")"],["Income (loss) attributable to Common OP Unit holders","","","1,282","","","","(1,800",")","","","1,584"],["Distributions - Preferred OP Units","","","492","","","","492","","","","492"],["Funds from operations attributable to Common Shareholders and Common OP Unit holders","","$","132,231","","","$","104,501","","","$","117,143"],["Less: Impact of City Point share conversion (b)","","","\u2014","","","","(906",")","","","\u2014"],["Funds from operations attributable to Common Shareholders and Common OP Unit holders - Diluted","","$","132,231","","","$","103,595","","","$","117,143"],["Funds From Operations per Share - Diluted"],["Basic weighted-average shares outstanding, GAAP earnings","","","95,283,752","","","","94,575,251","","","","87,653,818"],["Weighted-average OP Units outstanding","","","7,179,974","","","","6,299,222","","","","5,115,319"],["Basic weighted-average shares and OP Units outstanding, FFO","","","102,463,726","","","","100,874,473","","","","92,769,137"],["Assumed conversion of Preferred OP Units to Common Shares","","","463,898","","","","463,898","","","","464,623"],["Assumed conversion of LTIP units and restricted share units to Common Shares","","","\u2014","","","","\u2014","","","","\u2014"],["Diluted weighted-average number of Common Shares and Common OP Units outstanding, FFO","","","102,927,624","","","","101,338,371","","","","93,233,760"],["Diluted Funds from operations, per Common Share and Common OP Unit (c)","","$","1.28","","","$","1.02","","","$","1.26"]]
[[/GREPCENT_TABLE]]

a)
Represents the Company's total share of impairment charges from consolidated assets (Note 8) and allocated impairment charges from investments in and advances to unconsolidated affiliates (Note 4).

b)
The adjustment represents the impact of assumed conversion of dilutive convertible securities issued in connection with the City Point Loan in August 2022 that enabled the holder to convert its interest into the Company's Common Shares. The instrument was subsequently modified in the third quarter of 2022 to provide for a cash-only settlement option (Note 10).

c)
Diluted Funds from operations, per Common Share and Common OP Unit decreased for the year ended December 31, 2022 as compared to the prior year primarily related to the mark-to-market adjustment on our investment in Albertsons.

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 currently distribute at least 90% of our taxable income to our shareholders. During the year ended December 31, 2023, we paid dividends and distributions on our Common Shares, Common OP Units and Preferred OP Units totaling $68.6 million.

Investments

During the year ended December 31, 2023, Fund V acquired two consolidated properties and one unconsolidated property totaling $189.3 million, inclusive of transaction costs (Note 2, Note 4).

Structured Financing Investments

During the year ended December 31, 2023, we funded $5.3 million of a $12.8 million construction loan commitment to an unconsolidated venture (Note 4). We originated a new $1.4 million Core Portfolio loan and, through Fund V, we refinanced a $31.7 million bridge loan at an unconsolidated property that was originated by Fund V at acquisition with a new mortgage loan at an unconsolidated property.

Capital Commitments

During the year ended December 31, 2023, we made capital contributions aggregating $15.5 million to Funds IV and V, and $1.3 million to Fund II for City Point.

At December 31, 2023, our share of the remaining capital commitments to our Funds aggregated $29.3 million as follows:

•
$0.5 million to Fund III. Fund III was launched in May 2007 with total committed capital of $450.0 million of which our share was $89.6 million. During 2015, we acquired an additional interest, which had an original capital commitment of $20.9 million.

•
$6.2 million to Fund IV. Fund IV was launched in May 2012 with total committed capital of $530.0 million of which our share was $122.5 million.

•
$22.6 million to Fund V. Fund V was launched in August 2016 with total committed capital of $520.0 million of which our share is $104.5 million.

Development Activities

During the year ended December 31, 2023, capitalized costs associated with development activities totaled $14.9 million (Note 2). At December 31, 2023, we had a total of twelve consolidated projects under development or redevelopment, for which the estimated total cost to complete these projects through 2025 was $26.1 million to $42.5 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 Item 1A. Risk Factors.

51

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):

[[GREPCENT_TABLE]]
[["","","December 31,","","","December 31,"],["","","2023","","","2022"],["Total Debt - Fixed and Effectively Fixed Rate","","$","1,454,707","","","$","1,440,773"],["Total Debt - Variable Rate","","","426,380","","","","364,641"],["","","","1,881,087","","","","1,805,414"],["Net unamortized debt issuance costs","","","(11,186",")","","","(12,697",")"],["Unamortized premium","","","240","","","","343"],["Total Indebtedness","","$","1,870,141","","","$","1,793,060"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023, our consolidated indebtedness aggregated $1,881.1 million, excluding unamortized premium of $0.2 million and unamortized loan costs of $11.2 million, and were collateralized by 33 properties and related tenant leases. Stated interest rates on our outstanding indebtedness ranged from 3.99% to SOFR + 3.75% with maturities that ranged from January 2024 to April 2035, without regard to available extension options. Taking into consideration $1,249.8 million of notional principal under variable to fixed-rate swap agreements currently in effect, $1,454.7 million of the portfolio debt, or 77.3%, was fixed at a 4.71% weighted-average interest rate and $426.4 million, or 22.7% was floating at a 7.77% weighted average interest rate as of December 31, 2023. Our variable-rate debt includes $151.4 million of debt subject to interest rate caps.

Without regard to available extension options, at December 31, 2023 there is $327.6 million of debt maturing in 2024 at a weighted-average interest rate of 4.95%; there is $5.6 million of scheduled principal amortization due in 2024; and our share of scheduled 2024 principal payments and maturities on our unconsolidated debt was $69.1 million. In addition, $680.8 million of our total consolidated debt and $10.2 million of our pro-rata share of unconsolidated debt will come due in 2025. As it relates to the aforementioned maturing debt in 2024 and 2025, we have options to extend consolidated debt aggregating $0.0 million and $535.4 million at December 31, 2023, respectively; however, there can be no assurance that we will be able to successfully execute any or all of its available extension options. As it relates to the remaining maturing debt in 2024 and 2025, 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 at 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.

Share Repurchase Program

We maintain a share repurchase program under which $122.5 million remains available as of December 31, 2023 (Note 10). The Company did not repurchase any of its Common Shares under this program during the year ended December 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) investments of strategic capital (v) future sales of existing properties, (vi) repayments of structured financing investments, and (vii) cash on hand and future cash flow from operating activities. Our cash on hand in our consolidated subsidiaries at December 31, 2023 totaled $17.5 million. Our remaining sources of liquidity are described further below.

Common Share Issuances

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 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 intend to continue to 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 sell any shares under our ATM Program for the year ended December 31, 2023.

52

In January 2024, we completed an underwritten offering of 6,900,000 Common Shares (inclusive of the underwriters’ option to purchase 900,000 additional shares) for net proceeds of $113.0 million (Note 17). We intend to use the net proceeds from the Offering for general corporate purposes, which may include, without limitation, the repayment of outstanding indebtedness, funding future acquisitions, working capital and other general corporate purpose activities.

Fund Capital

During the year ended December 31, 2023, Funds IV and V called for capital contributions of $74.8 million, of which our aggregate share was $15.5 million. At December 31, 2023, unfunded capital commitments from noncontrolling interests within our Funds II, III, IV and V were zero, $1.4 million, $20.4 million, and $90.0 million, respectively.

Other Transactions

The contractual lock-up restrictions on our investment in Albertsons expired in January 2023, and we received 1.6 million shares. During the year ended December 31, 2023, we sold 200,000 shares of Albertsons, generating net proceeds of $4.6 million. At December 31, 2023, we held 1.4 million shares which had a fair value of $33.3 million (Note 4, Note 8). In addition, during the year ended December 31, 2023, we recognized dividend income of $29.1 million (inclusive of the $28.2 million special dividend received from Mervyns II investment in Albertsons prior to the expiration of the lockup), of which the Company's share was $12.0 million (Note 8). In April and June 2023, Fund II received $2.0 million, or $1.1 million at the Company’s share, of proceeds from the Century 21 Department Stores LLC bankruptcy claim (Note 11).

During the year ended December 31, 2023, Fund V refinanced a $31.7 million bridge loan at an unconsolidated property that was originated by Fund V at acquisition. 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 December 31, 2023, we had $106.1 million of additional capacity under existing consolidated Core and Fund revolving debt facilities. In addition, at that date within our Core and Fund portfolios, we had 92 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.

HISTORICAL CASH FLOW

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","Variance"],["Net cash provided by operating activities","","$","155.8","","","$","133.2","","","$","22.6"],["Net cash used in investing activities","","","(208.5",")","","","(124.2",")","","","(84.3",")"],["Net cash provided by (used in) financing activities","","","45.9","","","","(4.4",")","","","50.3"],["Changes in cash, cash equivalents and restricted cash","","$","(6.9",")","","$","4.7","","","$","(11.6",")"]]
[[/GREPCENT_TABLE]]

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 $22.6 million more cash for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to the $28.2 million dividend received from our investment in Albertsons in 2023, offset by higher payments of interest in 2023.

53

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 $84.3 million more cash for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to (i) $224.6 million less cash received from the disposition of properties, (ii) $33.3 million less cash received from return of capital from unconsolidated affiliates, (iii) $29.5 million less cash received from repayment of notes receivable, and (iv) $18.5 million more cash used in development, construction, and property improvements. These sources of cash were primarily offset by (i) $117.9 million less cash used for the acquisition of properties, and (ii) $101.0 million less cash used in our investments in and advances to unconsolidated affiliates.

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 $50.3 million more cash during the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily from (i) $145.4 million more cash received in proceeds from debt, (ii) $48.3 million less cash used for distributions to noncontrolling interests, (iii) $24.3 million less cash used for the acquisition of noncontrolling interests, and (iv) $5.3 million from lower financing costs. These decreases were offset by (i) $119.5 million less cash provided by the sale of Common Shares, (ii) $49.5 million less cash provided by contributions from noncontrolling interests, and (iii) $4.0 million more cash used in 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 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):

[[GREPCENT_TABLE]]
[["","","Operating Partnership","","","December 31, 2023"],["Investment","","Ownership Percentage","","","Pro-rata Share of Mortgage Debt","","","Effective Interest Rate (a)","","","Maturity Date"],["Gotham","","","49.0","%","","$","8.5","","","","8.36","%","","Mar 2024"],["Eden Square","","","20.8","%","","","5.0","","","","7.60","%","","Sep 2024"],["Crossroads","","","49.0","%","","","29.1","","","","3.94","%","","Oct 2024"],["Tri City Plaza(c)","","","18.1","%","","","6.9","","","","3.04","%","","Oct 2024"],["Frederick Crossing(c)","","","18.1","%","","","4.3","","","","3.27","%","","Dec 2024"],["Paramus Plaza(b)","","","11.6","%","","","3.2","","","","7.69","%","","Dec 2024"],["Frederick County Square(c)","","","18.1","%","","","4.2","","","","5.49","%","","Jan 2025"],["650 Bald Hill","","","20.8","%","","","3.2","","","","3.75","%","","Jun 2026"],["Renaissance(b)","","","20.0","%","","","30.4","","","","7.15","%","","Nov 2026"],["840 N. Michigan","","","91.9","%","","","50.0","","","","6.50","%","","Dec 2026"],["3104 M Street(b)","","","20.0","%","","","0.8","","","","8.50","%","","Jan 2027"],["Wood Ridge Plaza","","","18.1","%","","","6.1","","","","7.20","%","","Mar 2027"],["La Frontera","","","18.1","%","","","10.0","","","","6.11","%","","Jun 2027"],["Riverdale","","","18.0","%","","","6.9","","","","7.28","%","","Nov 2027"],["Georgetown","","","50.0","%","","","7.2","","","","4.72","%","","Dec 2027"],["Mohawk Commons","","","18.1","%","","","7.2","","","","5.80","%","","Mar 2028"],["Shoppes at South Hills(c)","","","18.1","%","","","5.8","","","","5.95","%","","Mar 2028"],["Total","","","","","$","188.8"]]
[[/GREPCENT_TABLE]]

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

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

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

54

CRITICAL ACCOUNTING ESTIMATES

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 accounting principles generally accepted in the United States of America, referred to as “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 the following critical accounting policies affect the significant judgments and estimates used by us in the preparation of our Consolidated Financial Statements.

Real Estate and Investments in and Advances to Unconsolidated Affiliates – Impairment of Properties

On a periodic basis, we assess whether there are any indicators that the value of real estate assets, including any related right-of-use (“ROU”), intangible assets, undeveloped land and construction in progress, may be impaired. A property’s value is impaired only if the estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. The determination of undiscounted cash flows requires significant estimates by management. In management’s estimate of cash flows, it considers factors such as expected future sale of an asset or development alternatives, capitalization rates and the undiscounted future cash flows analysis, which is probability-weighted based upon management’s best estimate of the likelihood of the alternative courses of action. Expected future cash flows and recoverability conclusions could be materially impacted by changes in items such as future leasing activity, occupancy, property operating costs, market pricing, our view or strategy relative to a tenant’s business or industry, the manner in which a property is used and the expected hold period of an asset. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the Company’s net income. To the extent an impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property.

The Company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments. These assessments have a direct impact on the Company’s estimates of the projected future cash flows, anticipated holding periods or market conditions change, its evaluation of the impairment charges may be different, and such differences could be material to the Company’s consolidated financial statements. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

During 2023 and 2022, the Company recognized impairment charges on properties of $3.7 million and $33.3 million, respectively. See Note 8 for a discussion of impairments recognized during the periods presented.

Our investments in unconsolidated joint ventures are reviewed for indicators of impairment on a quarterly basis and we record impairment charges when events or circumstances change indicating that a decline in the fair values below the carrying amounts has occurred and such decline is other-than-temporary. This evaluation of the investments in unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. We will record an impairment charge if we determine that a decline in the fair value below the carrying amount of an investment in an unconsolidated joint venture is other-than-temporary. The fair value is calculated using discounted cash flows which is subjective and considers assumptions regarding future occupancy, future rental rates, future capital requirements, debt interest rates and availability, discount rates and capitalization rates that could differ materially from actual results in future periods.

Revenue Recognition and Receivables – Estimating Collectability

We assess the collectability of our accounts receivable related to tenant revenues under ASC Topic 842 “Leases” (“ASC 842”). Management exercises judgment in assessing collectability and will look to both quantitative and qualitative factors. Such factors include tenants’ current credit status, either from third parties or using an internal risk assessment, payment history, amount of outstanding receivables, tenant sales performance, potential liquidity and current economic and sector specific trends. Changes in our assessments of collectability are recognized as adjustments to rental revenue in accordance with ASC 842. These assessments are inherently sensitive as they are based on the judgment of management and information available at the time of evaluation. We routinely reassess the quantitative and qualitative factors used to derive these estimates and believe the methods and assumptions noted above to be reasonable in evaluating collectability.

Billed tenant receivables, and receivables arising from the straight-lining of rents, are written-off when management deems the collectability of substantially all future lease payments from a specific lease is not probable, at which point, the Company will begin recognizing revenue from such leases prospectively on a cash basis, based on actual amounts received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee’s remaining lease payments under the lease term, the Company will reinstate the receivables balance, including those arising from the straight-lining of rents, adjusting for the amount related to the period when the lease was accounted for on a cash basis.

55

Rental revenue for the years ended December 31, 2023, 2022 and 2021 are reported net of our collectability related adjustments of $(1.3) million, $1.5 million, and $1.9 million, respectively (Note 11).

Real Estate – Estimates Related to Valuing Acquired Assets and Liabilities

Upon acquisitions of real estate, we assess the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, “above-” and “below-market” leases, leasing and assumed financing origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations” and ASC Topic 350 “Intangibles – Goodwill and Other,” and allocate the purchase price to the acquired assets and assumed liabilities, including land and buildings as if vacant.

We assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities based on their relative fair values at date of acquisition. In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts, including fixed rate below-market renewal options, to be paid pursuant to the in-place leases and our estimate of the market lease rates and other lease provisions for comparable leases measured over a period equal to the estimated remaining term of the lease. Tenant related intangibles and improvements are amortized on a straight-line basis over the related lease term, including any renewal options. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place leases. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a lease terminates prior to its stated expiration, all unamortized amounts relating to that lease are written off.

During the year ended December 31, 2023, we completed two asset acquisitions, and the purchase price of each was allocated based on the relative fair values of the assets acquired and liabilities assumed (Note 2).

Investments in and Advances to Unconsolidated Affiliates – Consolidation

We account for our investments in and advances to unconsolidated affiliates under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are variable interest entities (each, a "VIE") and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. Determining control of the entities can be subjective in assessing which activities of the joint venture most significantly impact the economic performance and whether the rights of the joint venture partner are protective or participating. In making this determination, any new or amended joint venture agreement is assessed by the Company for the activities that most significantly impact the joint venture’s economic performance based on the business purpose and design of the venture. We assess the rights that are conveyed to us in the agreement and evaluate whether we are provided with participating or protective rights over the activities that most significantly impact the entity’s economic performance. We also assess the rights of our joint venture partner. Such participating rights include, among other things, the right to approve/amend the annual budget, leasing of the property to a significant tenant, and approval of financing. If our joint venture partner has substantive participating rights and we are determined not to be the primary beneficiary, we do not consolidate the entity. The assets and liabilities of the consolidated VIEs are described in Note 16.

Recently Issued Accounting Pronouncements

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

56