Summary of ACADIA REALTY TRUST

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion is based on the consolidated financial statements of the Company as of September 30, 2008 and 2007 and for the three and nine months then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements. Such factors are set forth under the heading "Item 1A. Risk Factors" in our Form 10-K for the year ended December 31, 2007 and Item 1A of Part II of this Form 10-Q and include, among others, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability and creditworthiness of prospective tenants, lease rents and the availability of financing; adverse changes in our real estate markets, including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environmental/safety requirements. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-Q.
OVERVIEW
We currently operate 85 properties, which we own or have an ownership interest in, within our Core Portfolio or within our three opportunity funds (the "Opportunity Funds"). These properties consist of commercial properties, primarily neighborhood and community shopping centers, self-storage and mixed-use properties with a retail component. The properties we operate are located primarily in the Northeast, Mid-Atlantic and Midwestern regions of the United States. Our Core Portfolio consists of 35 properties comprising approximately 5.5 million square feet. Fund I has 27 properties comprising approximately 1.3 million square feet. Fund II has ten properties, the majority of which are currently under redevelopment and is expected to have approximately 2.3 million square feet upon completion of redevelopment activities. Fund III has 13 properties totaling approximately 1.2 million square feet. The majority of our operating income derives from the rental revenues from these properties, including recoveries from tenants, offset by operating and overhead expenses. As our RCP Venture invests in operating companies, we consider these investments to be private-equity style, as opposed to real estate, investments. Since these are not traditional investments in operating rental real estate, the Operating Partnership invests in these through a taxable REIT subsidiary ("TRS"). 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/or operate a portfolio of community and neighborhood shopping centers, self-storage and mixed-use properties, located in high barrier-to-entry markets with strong demographic features.

- Generate internal growth within the Core Portfolio through aggressive redevelopment, re-anchoring and leasing activities.

- Generate external growth through an opportunistic yet disciplined acquisition program. The emphasis is on targeting transactions with high inherent opportunity for the creation of additional value through redevelopment and leasing and/or transactions requiring creative capital structuring to facilitate the transactions.

- Partner 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.

CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about 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 Annual Report on Form 10-K for the year ended December 31, 2007.

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RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2008 ("2008") to the three
months ended September 30, 2007 ("2007")
Revenues

                                                        2008                                                       2007
                                    Core             Opportunity                               Core             Opportunity
(dollars in millions)             Portfolio             Funds             Other (1)          Portfolio             Funds             Other (1)
Minimum rents                    $      11.1        $         7.2        $         -        $      11.2        $         4.9        $         -
Percentage rents                         0.1                    -                  -                0.1                    -                  -
Expense reimbursements                   2.9                  0.9                  -                2.8                  0.4                  -
Lease termination income                   -                 (0.5 )                -                  -                    -                  -
Other property income                    0.1                 (0.3 )              0.6                0.2                  0.1                  -
Management fee income                      -                    -                0.6                  -                    -                1.6
Interest income                            -                    -                4.6                  -                    -                2.6


Total revenues                   $      14.2        $         7.3        $       5.8        $      14.3        $         5.4        $       4.2

Note:

(1) Includes amounts eliminated in consolidation which are adjusted in Minority Interest. Reference is made to Note 13 to the Notes to Consolidated Financial Statements in

Part 1, Item 1 of this Form 10-Q for an overview of the Company's three reportable segments.

The increase in minimum rents in the Opportunity Funds primarily relates to additional rents following the acquisition of 125 Main Street and Storage Post Portfolio ("2007/2008 Fund Acquisitions") of $0.9 million, 216th Street being placed in service October 1, 2007 of $0.7 million, and Pelham Manor Shopping Plaza and Fordham Plaza being partially placed in service in 2008. Expense reimbursements in the Opportunity Funds increased as a result of the billing in 2008 of previous year's overtime labor charges at 161st Street. Lease termination income in the Opportunity Funds for 2008 relates to costs associated with the termination fee earned during the second quarter 2008 from Home Depot at Canarsie Plaza.
Management fee income decreased primarily as a result of lower management fees, primarily as a result of higher leasing commissions earned during 2007, in connection with the retenanting of one of our investments in unconsolidated affiliates.
The increase in interest income was the result of higher interest earning assets in 2008, primarily from new notes receivable.

Operating Expenses

                                                          2008                                                       2007
                                      Core             Opportunity                               Core             Opportunity
(dollars in millions)               Portfolio             Funds             Other (1)          Portfolio             Funds             Other (1)
Property operating                 $       1.8        $         3.0        $         -        $       1.9        $         0.9        $         -
Real estate taxes                          2.1                  1.0                  -                2.0                  0.4                  -
General and administrative                 6.7                  4.2               (3.7 )              6.0                  4.5               (5.1 )
Depreciation and amortization              4.3                  4.0                  -                3.7                  2.2                  -


Total operating expenses           $      14.9        $        12.2        $      (3.7 )      $      13.6        $         8.0        $      (5.1 )

The increase in the property operating expenses in the Opportunity Funds was primarily the result of the 2007/2008 Fund Acquisitions as well as allocated property operating expenses related to Pelham Manor Shopping Plaza being partially placed in service in 2008.
The increase in real estate taxes in the Opportunity Funds was attributable to the 2007/2008 Fund Acquisitions as well as allocated real estate taxes related to Pelham Manor Shopping Plaza being partially placed in service in 2008. The increase in general and administrative expense in the Core Portfolio was primarily attributable to increased compensation expense of $0.9 million for additional personnel hired in the later part of 2007 and in 2008 as well as increases in existing employee salaries.

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The decrease in general and administrative expense in the Opportunity Funds primarily related to the promote expense of $1.0 attributable to Fund I in 2007. This decrease was offset by an increase in Fund III abandoned project costs in 2008. The decrease in general and administrative in Other primarily relates to the elimination of the Fund I promote expense for consolidated financial statement presentation.
Depreciation expense in the Core Portfolio increased $0.1 million as a result of the acquisition of East 17th Street ("2008 Core Acquisitions"). Amortization expense in the Core Portfolio increased $0.5 million in 2008. This was principally the result of increased amortization expense related to the Klaff management contracts in 2008. Depreciation expense increased $1.4 million in the Opportunity Funds due to the 2007/2008 Fund Acquisitions, 216th Street being placed in service October 1, 2007 and Pelham Manor Shopping Plaza and Fordham Plaza being partially placed in service in 2008. Amortization increased $0.4 million in the Opportunity Funds as a result of additional amortization of loan costs related to the 2007/2008 Fund Acquisitions and Fordham Plaza being partially placed in service in 2008

Other

                                                    2008                                                    2007
                                 Core           Opportunity                              Core           Opportunity
(dollars in millions)         Portfolio            Funds            Other (1)         Portfolio            Funds            Other (1)
Equity in earnings of
unconsolidated
affiliates                    $      -          $      6.7          $      -          $    0.2          $      0.3          $      -
Interest Expense                  (4.4 )              (3.2 )               -              (4.2 )              (1.5 )             0.1
Minority Interest                 (0.1 )               1.2               0.2                 -                 4.4               0.6
Income Taxes                       0.2                   -                 -              (0.2 )                 -                 -
Income from
discontinued operations              -                   -               0.9                 -                   -               0.2
Extraordinary Item                   -                   -                 -                 -                 0.8                 -

Equity in earnings of unconsolidated affiliates in the Opportunity Funds increased primarily as a result of our pro rata share of distributions in excess of basis from our Albertson's investment of $3.6 million in 2008 and $6.5 million of equity in earnings classified as extraordinary gain in 2007. These increases were partially offset by a decrease in our pro rata share of distributions in excess of basis from our investment in Hitchcock Plaza of $2.7 million in 2007 as well as a decrease in our pro rata share of income from Mervyns of $1.0 million in 2008.
Total interest expense in the Core Portfolio increased $0.2 million in 2008. This was the result of a $0.3 million increase attributable to higher average outstanding borrowings in 2008. Interest expense in the Opportunity Fund increased $1.7 million in 2008. This was the result of an increase of $2.1 million due to higher average outstanding borrowings in 2008 offset by a $0.4 million decrease related to lower average interest rates in 2008. The minority interest in the Opportunity Funds primarily represents the minority partners' share of all Opportunity Fund activity and ranges from a 77.8% interest in Fund I to an 80.1% interest in Fund III. The variance between 2008 and 2007 represents the minority partners' share of all the Opportunity Funds variances discussed above. The minority interest in Other relates to the minority partners' share of capitalized construction, leasing and legal fees. Income from discontinued operations represents activity related to properties held for sale and sold in 2008 and 2007.
The extraordinary item in 2007 relates to the reclassification of income from the Albertson's investment as discussed above.

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RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 2008 ("2008") to the nine
months ended September 30, 2007 ("2007")
Revenues

                                                        2008                                                       2007
                                    Core             Opportunity                               Core             Opportunity
(dollars in millions)             Portfolio             Funds             Other (1)          Portfolio             Funds             Other (1)
Minimum rents                    $      34.2        $        22.4        $         -        $      32.7        $        14.3        $         -
Percentage rents                         0.2                    -                  -                0.3                    -                  -
Expense reimbursements                   9.5                  1.5                  -                8.0                  0.6                  -
Lease termination income                   -                 24.0                  -                  -                    -                  -
Other property income                    0.2                    -                0.6                0.4                  0.1                  -
Management fee income                      -                    -                3.0                  -                    -                3.4
Interest income                            -                    -                9.3                  -                    -                7.7
Other                                      -                    -                  -                0.2                    -                  -


Total revenues                   $      44.1        $        47.9        $      12.9        $      41.6        $        15.0               11.1

Note:

(1) Includes amounts eliminated in consolidation which are adjusted in Minority Interest. Reference is made to Note 13 to the Notes to Consolidated Financial Statements in

Part 1, Item 1 of this Form 10-Q for an overview of the Company's three reportable segments.

The increase in minimum rents in the Core Portfolio was attributable to additional rents following our acquisition of 200 West 54th Street, 145 East Service Road and East 17thStreet ("2007/2008 Core Acquisitions") of $1.3 million as well as re-tenanting activities across the Core Portfolio. The increase in rents in the Opportunity Funds primarily relates to additional rents following the 2007/2008 Fund Acquisitions of $4.7 million and properties placed in service as discussed for the three months ended September 30, 2008.
Expense reimbursements in the Core Portfolio increased for both real estate taxes and common area maintenance ("CAM"). Real estate tax reimbursements increased $0.4 million in the Core Portfolio as a result of the 2007/2008 Core Acquisitions as well as general increases in real estate taxes experienced across the Core Portfolio in 2008. CAM expense reimbursements in the Core Portfolio increased $1.1 million. In 2007, we completed our multi-year review of CAM billings and resolved the majority of all outstanding CAM billing issues with our tenants. As a result, 2007 was adversely impacted by charges related to the settlement and related accrual adjustments totaling $1.0 million. The increase in expense reimbursements in the Opportunity Funds relates primarily to the billing in 2008 of previous year's overtime labor charges at 161st Street for $0.6 million and the billing of previous year's utility charges to an anchor tenant for $0.3 million.
Lease termination income in the Opportunity Funds for 2008 relates to a termination fee earned, net of costs, from Home Depot at Canarsie Plaza. Management fee income decreased as a result of lower management fees earned in connection with our investments in unconsolidated affiliates, primarily as a result of higher leasing commissions earned during 2007, and lower fees from our Klaff management contracts following the disposition of certain managed assets in 2008 and 2007. These decreases were offset by fees totaling $1.0 million earned from the City Point development project.
The increase in interest income was the result of higher interest earning assets in 2008, primarily from new notes receivable.
The decrease in other income was primarily attributable to the non recurrence of income related to the settlement of interest rate swap agreements in 2007.

Operating Expenses

                                                          2008                                                       2007
                                      Core             Opportunity                               Core             Opportunity
(dollars in millions)               Portfolio             Funds             Other (1)          Portfolio             Funds             Other (1)
Property Operating                 $       6.5        $         7.6        $      (0.1 )      $       6.2        $         2.5        $         -
Real Estate Taxes                          6.1                  2.4                  -                5.5                  1.0                  -
General and administrative                20.1                 14.4              (14.6 )             17.7                  7.9               (9.3 )
Depreciation and amortization             12.4                  9.8                  -               10.8                  6.8                  -


Total operating expenses           $      45.1        $        34.2        $     (14.7 )      $      40.2        $        18.2        $      (9.3 )

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The increase in property operating expenses in the Core Portfolio relates to the recovery of previous period accounts receivable reserves in 2007 based on subsequent tenant collections. The increase in property operating expenses in the Opportunity Funds was attributable to the 2007/2008 Fund Acquisitions, 216th Street being placed in service October 1, 2007 and allocated property operating expenses related to Pelham Manor Shopping Plaza being partially placed in service in 2008.
The increase in real estate taxes in the Core Portfolio was due to the 2007/2008 Core Acquisitions as well as general increases in real estate taxes experienced across the Core Portfolio. The increase in real estate taxes in the Opportunity Funds was attributable to the 2007/2008 Fund Acquisitions of $0.9 million, an adjustment of prior year over estimation of taxes of $0.2 million recorded in 2007 as well as allocated real estate taxes related to Pelham Manor Shopping Plaza being partially placed in service in 2008.
The increase in general and administrative expense in the Core Portfolio was primarily attributable to increased compensation expense of $2.7 million for additional personnel hired in the second half of 2007 and in 2008 as well as increases in existing employee salaries. In addition, there was an increase of $0.7 million for other overhead expenses following the expansion of our infrastructure related to increased activity in Opportunity Fund assets and asset management services. This increase was partially offset by an increase in capitalized construction salaries due to increased redevelopment activities in 2008. The increase in general and administrative expense in the Opportunity Funds primarily related to the Fund III asset management fee of $2.8 million, promote expense of $3.4 million related to Fund I and Mervyns I as well as Fund III abandoned project costs of $0.5 million in 2008. The decrease in general and administrative in Other primarily relates to the elimination of the Fund III asset management and the elimination of the Fund I and Mervyns I promote expense for consolidated financial statement presentation.
Depreciation expense in the Core Portfolio increased $0.7 million in 2008. This was principally a result of increased depreciation expense following the 2007/2008 Core Acquisitions. Amortization expense in the Core Portfolio increased $0.9 million primarily due to additional amortization of the Klaff management contracts in 2008. The increase in depreciation and amortization expense for the Opportunity Funds is primarily related to the 2007/2008 Fund Acquisitions and assets placed in service as discussed for the three months ended September 30, 2008.

Other

                                                     2008                                                     2007
                                  Core            Opportunity                              Core            Opportunity
(dollars in millions)           Portfolio            Funds            Other (1)          Portfolio            Funds            Other (1)
Gain on sale of land           $     0.8          $        -          $      -          $       -          $        -          $      -
Equity in earnings of
unconsolidated
affiliates                             -                24.4                 -                0.6                 3.6                 -
Interest Expense                   (12.9 )              (7.6 )               -              (12.9 )              (3.9 )             0.2
Minority Interest                    0.2               (24.1 )             2.9                0.2                 5.0               1.5
Income Taxes                         2.4                   -                 -                0.2                   -                 -
Income from discontinued
operations                             -                   -              10.1                  -                   -               1.9
Extraordinary item                     -                   -                 -                  -                 3.7                 -

The gain on sale of land in 2008 in the Core Portfolio relates to a land parcel sale at Bloomfield Towne Square.
Equity in earnings of unconsolidated affiliates in the Opportunity Funds increased primarily as a result of our pro rata share of gains from the sale of Mervyns locations in 2008 of $10.7 million, an increase in distributions in excess of basis from our Albertson's investment of $2.6 million, our pro rata share of gain from the sale of the Haygood Shopping Center of $3.3 million and $6.5 million of equity in earnings classified as extraordinary gain in 2007. These increases were partially offset by a decrease in our pro rata share of distributions in excess of basis from our investment in Hitchcock Plaza of $2.7 million in 2007.
Interest expense in the Core Portfolio remained unchanged from 2007 to 2008. This was the result of a $0.9 million increase attributable to higher average outstanding borrowings in 2008. This increase was offset by a $0.7 million FAS 141 adjustment related to the repayment of debt at less than recorded value in 2008 and a $0.2 million decrease resulting from lower average interest rates in 2008. Interest expense in the Opportunity Funds increased $3.7 million in 2008. This was the result of an increase of $4.8 million due to higher average outstanding borrowings in 2008 offset by a $1.1 million decrease related to lower average interest rates in 2008.
The minority interest in the Opportunity Funds primarily represents the minority partners' share of all Opportunity Fund activity and ranges from a 77.8% interest in Fund I to an 80.1% interest in Fund III. The variance between 2008 and 2007 represents the minority partners' share of all the Opportunity Funds variances discussed above. The minority interest in Other relates to the minority partners' share of capitalized construction, leasing and legal fees. The variance in income tax expense in the Core Portfolio primarily relates to income taxes at the taxable REIT subsidiary ("TRS") level for our share of gains from the sale of Mervyns locations in 2008.
Income from discontinued operations represents activity related to properties held for sale and sold in 2008 and 2007.

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The extraordinary item in 2007 in the Opportunity Funds relates to our share of the extraordinary gain, net of income taxes and minority interest, from our Albertson's investment.
Funds from Operations
Consistent with the National Association of Real Estate Investment Trusts ("NAREIT") definition, we define funds from operations ("FFO") as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciated property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
In addition to presenting FFO in accordance with the NAREIT definition, we also disclose FFO for the nine months ended September 30, 2007 as adjusted to include the extraordinary gain from our RCP investment in Albertson's. This gain was a result of distributions we received in excess of our invested capital of which the Operating Partnership's share, net of minority interests and income taxes, amounted to $2.9 million. This gain was characterized as extraordinary in our . . .