Summary of ACADIA REALTY TRUST

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
As of December 31, 2012, we operated 100 properties, which we own or have an ownership interest in, within our Core Portfolio or within our Opportunity Funds. Our Core Portfolio consists of those properties either 100% owned by, or partially owned through joint venture interests by the Operating Partnership, or subsidiaries thereof, not including those properties owned through our Opportunity Funds. These 100 properties primarily consist of urban/street retail, dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component. The properties we operate are located primarily in high-barrier-to-entry, densely-populated metropolitan areas in the United States along the East Coast and in Chicago. There are 72 properties in our Core Portfolio totaling approximately 5.3 million square feet. Fund I has three remaining properties comprising approximately 0.1 million square feet. Fund II has six properties, four of which (representing 0.6 million square feet) are currently operating, one is under construction, and one is in the design phase. Fund III has 14 properties, nine of which (representing 1.7 million square feet) are currently operating and five of which are in the design phase. Fund IV has five properties, four of which are operating with one under design. The majority of our operating income is derived from rental revenues from these 100 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 but investments in operating businesses, 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 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 redevelopment and re-anchoring 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 through our Opportunity Funds. We target transactions with high inherent opportunity for the creation of additional value through:

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


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

? opportunistic purchases of debt which may include restructuring.

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

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

RESULTS OF OPERATIONS
Reference is made to Note 3 in the Notes to Consolidated Financial Statements for an overview of our four reportable segments.
A discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended December 31, 2012, 2011 and 2010 are addressed below:
Comparison of the year ended December 31, 2012 ("2012") to the year ended

December 31, 2011 ("2011")
Revenues                                          2012                                              2011
                                                                  Notes                                              Notes
                                Core          Opportunity       Receivable         Core          Opportunity      Receivable
(dollars in millions)         Portfolio          Funds          and Other        Portfolio          Funds          and Other
Rental income               $      57.2     $        42.5     $          -     $      45.9     $        34.2     $         -
Interest income                       -                 -              7.9               -                 -            11.4
Expense reimbursements             13.3              11.1                -            11.5               9.6               -
Management fee income (1)             -                 -              1.5               -                 -             1.7
Other                               0.1               0.8                -             0.5               0.3               -
Total revenues              $      70.6     $        54.4     $        9.4     $      57.9     $        44.1     $      13.1

Note:
(1) Includes fees earned by us as general partner or managing member of the Opportunity Funds that are eliminated in consolidation and adjusts the loss (income) attributable to noncontrolling interests. The balance reflected in the table represents third party fees that are not eliminated in consolidation. Reference is made to Note 3 of the Notes to Consolidated Financial Statements for an overview of our four reportable segments.

Rental income in the Core Portfolio increased $11.3 million as a result of additional rents of (i) $6.9 million related to 2012 Core Portfolio property acquisitions as detailed in Note 2 in the Notes to Consolidated Financial Statements ("2012 Core Acquisitions"), (ii) $2.5 million related to 2011 Core Portfolio property acquisitions ("2011 Core Acquisitions") and (iii) $1.3 million as a result of re-anchoring and leasing activities at Bloomfield Town Square and 2914 Third Avenue ("Core Redevelopment Properties"). Rental income in the Opportunity Funds increased $8.3 million as a result of additional rents of
(i) $3.0 million related to 2012 Opportunity Fund property acquisitions as detailed in Note 2 in the Notes to Consolidated Financial Statements ("2012 Fund Acquisitions"), (ii) $2.2 million related to 2011 Opportunity Fund property acquisitions ("2011 Fund Acquisitions") and (iii) $2.8 million from leases that commenced during 2011 and 2012 at Fordham Place and 161st Street ("Fund Redevelopment Properties").

Interest income in Notes Receivable and Other decreased as a result of the full repayment of two notes during 2011. This was partially offset by five new notes originated during 2012.
The increase in expense reimbursements in the Core Portfolio was the result of the 2012 and 2011 Core Acquisitions, Core Redevelopment Properties and an increase in common area maintenance ("CAM") expenses during 2012. Expense reimbursements in the Opportunity Funds increased for both real estate taxes and CAM as a result of the 2012 and 2011 Fund Acquisitions and the Fund Redevelopment Properties.

Operating Expenses                                   2012                                              2011
                                                                      Notes                                             Notes
                                    Core          Opportunity      Receivable         Core          Opportunity      Receivable
(dollars in millions)             Portfolio          Funds          and Other       Portfolio          Funds          and Other
Property operating              $       9.6     $        15.1     $      (2.8 )   $       7.7     $        12.2     $      (2.4 )
Other operating                         2.1               2.1            (0.2 )           0.8               0.7            (0.1 )
Real estate taxes                      10.0               8.8               -             8.6               6.7               -
General and administrative             22.8              14.4           (15.7 )          24.2              16.7           (17.8 )
Depreciation and amortization          18.3              15.6            (1.0 )          14.2              12.4            (0.9 )
Reserve for notes receivable              -                 -             0.4               -                 -               -
Total operating expenses        $      62.8     $        56.0     $     (19.3 )   $      55.5     $        48.7     $     (21.2 )

The increase in property operating expenses for the Core Portfolio was a result of the 2012 and 2011 Core Acquisitions and an $1.2 million increase in credit loss during 2012. Property operating in the Opportunity Funds increased as a result of the 2012 and 2011 Fund Acquisitions and an increase in credit loss during 2012.
Other operating expenses, which represent acquisition costs, increased for the Core Portfolio and the Opportunity Funds as a result of the 2012 Core Acquisitions and the 2012 Fund Acquisitions, respectively.
Real estate tax expense in the Core Portfolio increased as a result of the 2012 and 2011 Core Acquisitions. Real estate taxes in the Opportunity Funds increased as a result of the 2012 and 2011 Fund Acquisitions and the Fund Redevelopment Properties.
The decrease in general and administrative expense in the Core Portfolio was due to an increase in capitalized salaries related to leasing and redevelopment activities in 2012. The changes in general and administrative expense in the Opportunity Funds and Other, are offsetting, and relate to Promote expense within Fund I, which is eliminated for consolidated financial statement presentation purposes.
Core Portfolio depreciation and amortization increased $4.1 million as a result of the 2012 and 2011 Core Acquisitions. Depreciation and amortization expense in the Opportunity Funds increased $3.2 million due to the 2012 and 2011 Fund Acquisitions and the Fund Redevelopment Properties.

Other                                           2012                                               2011
                                                               Notes                                              Notes
                              Core        Opportunity       Receivable           Core        Opportunity       Receivable
(dollars in millions)      Portfolio         Funds           and Other        Portfolio         Funds           and Other
Equity in earnings of
unconsolidated
affiliates                $      0.3     $       1.3     $          -        $      0.7     $       0.9     $          -
Other interest income              -               -              0.1                 -               -              0.3
Gain on involuntary
conversion of asset              2.4               -                -                 -               -                -
(Loss) gain on debt
extinguishment                     -            (0.2 )              -               1.3               -                -
Interest and other
finance expense                (15.2 )         (12.9 )           (0.6 )           (16.0 )         (12.7 )           (1.0 )
Income tax (provision)
benefit                         (0.2 )           0.8                -              (1.1 )           0.6                -
Income from
discontinued operations            -               -             79.4                 -               -             48.7
(Loss) income
attributable to
noncontrolling
interests:
 - Continuing
operations                      (0.3 )          13.7                -              (0.3 )          13.9                -
 - Discontinued
operations                         -               -            (63.8 )               -               -            (15.8 )

Equity in earnings of unconsolidated affiliates in the Opportunity Funds increased as a result of our share of the $3.4 million gain on the sale of an unconsolidated Opportunity Fund investment and a decrease in acquisition costs during 2012. This was partially offset by 2012 expenses of $2.0 million following the settlement of certain legal proceedings related to our Mervyns investment (reference is made to Legal Proceedings in Part 1, Item 3 in this Form 10-K) and a decrease of $2.6 million in distributions in excess of basis from our Albertson's investment in 2012.

Gain on involuntary conversion of asset of $2.4 million relates to insurance proceeds received in excess of net basis for flood damage at Mark Plaza. Gain on debt extinguishment of $1.3 million in the Core Portfolio was the result of the purchase of mortgage debt at a discount in 2011.

Income from discontinued operations represents activity related to property sales during 2012 and 2011.

(Loss) income attributable to noncontrolling interests - Continuing operations and Discontinued operations represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above. Comparison of the year ended December 31, 2011 ("2011") to the year ended

December 31, 2010 ("2010")
Revenues                                         2011                                              2010
                                                                  Notes                                             Notes
                                Core          Opportunity      Receivable         Core          Opportunity      Receivable
(dollars in millions)         Portfolio          Funds          and Other       Portfolio          Funds          and Other
Rental income               $      45.9     $        34.2     $         -     $      44.6     $        30.5     $         -
Interest income                       -                 -            11.4               -                 -            19.2
Expense reimbursements             11.5               9.6               -            11.9               8.0               -
Lease termination income            0.1                 -               -             0.3                 -
Management fee income (1)             -                 -             1.7               -                 -             1.4
Other                               0.4               0.3               -             0.3               0.2               -
Total revenues              $      57.9     $        44.1     $      13.1     $      57.1     $        38.7     $      20.6

Note:
(1) Includes fees earned by us as general partner or managing member of the Opportunity Funds that are eliminated in consolidation and adjusts the loss (income) attributable to noncontrolling interests. The balance reflected in the table represents third party fees that are not eliminated in consolidation. Reference is made to Note 3 in the Notes to Consolidated Financial Statements for an overview of our four reportable segments.

The increase in rental income in the Core Portfolio was attributable to additional rents following the 2011 Core Acquisitions. Rental income in the Opportunity Funds increased from additional rents at Pelham Manor and 161st Street of $1.7 million for leases that commenced during 2010 and 2011 ("2010/2011 Fund Redevelopment Properties") as well as additional rents of $2.1 million following the 2011 Fund Acquisitions.
Interest income decreased as a result of the full repayment of two notes during 2010 and 2011.
Expense reimbursements in the Opportunity Funds increased for both real estate taxes and common area maintenance as a result of the 2010/2011 Fund Redevelopment Properties and the 2011 Fund Acquisitions.

Operating Expenses                                   2011                                              2010
                                                                      Notes                                             Notes
                                    Core          Opportunity      Receivable         Core          Opportunity      Receivable
(dollars in millions)             Portfolio          Funds          and Other       Portfolio          Funds          and Other
Property operating              $       7.7     $        12.2     $      (2.4 )   $       9.1     $        12.0     $      (1.6 )
Other operating                         0.8               0.7            (0.1 )             -                 -               -
Real estate taxes                       8.6               6.7               -             8.2               5.8               -
General and administrative             24.2              16.7           (17.8 )          22.4              13.6           (15.8 )
Depreciation and amortization          14.2              12.4            (0.9 )          13.8              10.1            (0.5 )
Total operating expenses        $      55.5     $        48.7     $     (21.2 )   $      53.5     $        41.5     $     (17.9 )

Property operating expenses in the Core Portfolio decreased as a result of higher credit loss during 2010.
General and administrative expense in the Core Portfolio increased as a result of higher stock compensation expense and employee severance costs during 2011. The changes in general and administrative expense in the Opportunity Funds and Other, are offsetting, and relate to Promote expense within Fund I, which is eliminated for consolidated financial statement presentation purposes. Depreciation and amortization expense in the Opportunity Funds increased due to the 2010/2011 Fund Redevelopment Properties and the 2011 Fund Acquisitions.

Other                                           2011                                               2010
                                                               Notes                                              Notes
                              Core        Opportunity       Receivable           Core        Opportunity       Receivable
(dollars in millions)      Portfolio         Funds           and Other        Portfolio         Funds           and Other
Equity in earnings of
unconsolidated
affiliates                $      0.7     $       0.9     $          -        $      0.6     $      10.4     $          -
Other interest income              -               -              0.3                 -               -              0.4
Gain on debt
extinguishment                   1.3               -                -                 -               -                -
Gain from bargain
purchase                           -               -                -                 -            33.8                -
Interest and other
finance expense                (16.0 )         (12.7 )           (1.0 )           (18.0 )         (16.8 )            0.4
Income tax provision            (1.1 )           0.6                -              (3.2 )           0.4                -
Income from
discontinued operations            -               -             48.7                 -               -              3.5
(Loss) income
attributable to
noncontrolling
interests:
 - Continuing
operations                      (0.3 )          13.9                -              (0.3 )         (18.7 )              -
 - Discontinued
operations                         -               -            (15.8 )               -               -             (1.7 )

Equity in earnings of unconsolidated affiliates in the Opportunity Funds decreased as a result of a decrease in distributions in excess of basis from our Albertson's investment of $6.3 million in 2011 and a decrease in our pro-rata share of income from our Mervyns investment in 2011.
Gain on debt extinguishment of $1.3 million was the result of the purchase of mortgage debt at a discount in 2011.
The $33.8 million gain from bargain purchase was attributable to Fund II's purchase of an unaffiliated membership interest in CityPoint in 2010. Interest expense in the Core Portfolio decreased $2.0 million in 2011. This was the result of a decrease in average outstanding borrowings during 2011 resulting in a decrease of $1.5 million as well as a decrease in loan amortization expense of $0.4 million related to refinanced debt in 2011. Interest expense in the Opportunity Funds decreased $4.1 million in 2011. This was attributable to higher capitalized interest in 2011 and a decrease in loan amortization expense related to refinanced debt in 2010. These were offset by an increase of $1.1 million related to higher average outstanding borrowings and an increase of $1.1 million related to higher average interest rates in 2011.
The variance in the income tax provision in the Core Portfolio related to income taxes at the TRS level for our pro-rata share of income from our Albertson's investment in 2010 and an overaccrual of the 2010 tax liability at the TRS levels.
Income from discontinued operations represents activity related to property sales during 2011.
(Loss) income attributable to noncontrolling interests - Continuing operations and Discontinued operations represents the noncontrolling interests' share of all the Opportunity Funds variances discussed above.
CORE PORTFOLIO

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 Opportunity Funds invest primarily in properties that typically require significant leasing and redevelopment. Given that the Opportunity 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 Opportunity Fund investments.

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

Net Property Operating Income

NOI is determined as follows:
RECONCILIATION OF OPERATING INCOME TO NET OPERATING INCOME - CORE PORTFOLIO
(dollars in millions)                                       Year Ended December 31,
                                                             2012             2011
Operating Income                                        $      34.9       $      32.0
Add back:
 General and administrative                                    21.5              23.0
 Depreciation and amortization                                 32.9              25.7
  Impairment of asset                                           0.4                 -
Less:
 Management fee income                                         (1.4 )            (1.7 )
 Interest income                                               (7.9 )           (11.4 )
 Straight-line rent and other adjustments                     (10.3 )            (6.6 )
Consolidated NOI                                               70.1              61.0

Noncontrolling interest in NOI                                 (9.3 )            (8.9 )
Operating Partnership's interest in Opportunity Funds          (7.2 )            (7.5 )
NOI - Core Portfolio                                    $      53.6       $      44.6

Same Store NOI includes Core Portfolio properties that we owned for both the current and prior periods presented, but excludes those properties which we acquired, expect to sell, were sold or redeveloped during these periods. The following table summarizes Same Store NOI for our Core Portfolio for the years ended December 31, 2012 and 2011:

SAME STORE NET OPERATING INCOME - CORE PORTFOLIO
                                                   Year Ended December 31,
(dollars in millions)                               2012             2011
NOI                                            $      53.6       $      44.6
Less properties excluded from Same Store NOI         (13.3 )            (5.7 )
Same Store NOI                                 $      40.3       $      38.9

Percent change from historic period                    3.7 %

Components of Same Store NOI
Same Store Revenues                            $      57.9       $      56.5
Same Store Operating Expenses                         17.6              17.6
Same Store NOI                                 $      40.3       $      38.9

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 year ended December 31, 2012. 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.
                                                       Year Ended
                                                    December 31, 2012
Core Portfolio New and Renewal Leases      Cash Basis     Straight-Line Basis
Number of new and renewal leases executed        55                      55
Gross leasable area                         315,431                 315,431
New base rent                             $   16.56      $            17.16
Previous base rent                        $   16.71      $            16.16
Percent growth in base rent                    (0.9 )%                  6.2 %
Average cost per square foot (1)          $    7.07      $             7.07
Weighted average lease term (years)             5.5                     5.5

Note:
(1) The average cost per square foot includes tenant improvement costs, leasing commissions and tenant allowances.
SELF-STORAGE PORTFOLIO
During the fourth quarter of 2012, we sold 12 of the 14 self-storage properties with two properties remaining under contract. We anticipate closing on the remaining two properties during 2013. Accordingly, activity related to this portfolio is no longer relevant to a discussion of our results of operations.

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
                                                              For the Years Ended December 31,
(dollars in thousands)                            2012         2011         2010         2009         2008
Net income attributable to Common
Shareholders                                   $ 39,706     $ 51,555     $ 30,057     $ 31,133     $ 25,068
Depreciation of real estate and amortization
of leasing costs:
Consolidated affiliates, net of
noncontrolling interests' share                  23,090       18,274       18,445       18,847       18,519
Unconsolidated affiliates                         1,581        1,549        1,561        1,604        1,687
. . .