ACADIA REALTY TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

OVERVIEW

As of June 30, 2022, we own or have an ownership interest in 203 properties held
through our Core Portfolio and Funds. Our Core Portfolio consists of those
properties either 100% owned, or partially owned through joint venture
interests, by the Operating Partnership or its subsidiaries, not including those
properties owned through our Funds. These properties primarily consist of street
and urban retail, and dense suburban shopping centers. Our Funds are investment
vehicles through which our Operating Partnership and outside institutional
investors invest in primarily opportunistic and value-add retail real estate.
Currently, we have active investments in four Funds. A summary of our
wholly-owned and partially-owned retail properties and their physical
occupancies at June 30, 2022 is as follows:

Number of Properties Operating Properties
Development or
Redevelopment Operating GLA Occupancy
Core Portfolio:
Chicago Metro 1 38 694,139 85.0 %
New York Metro – 29 395,580 89.3 %
Los Angeles Metro – 2 23,757 100.0 %
San Francisco Metro 2 – – 0.0 %
Texas Metro 2 14 123,315 89.1 %
Washington DC Metro 1 31 342,250 77.4 %
Boston Metro – 3 55,276 100.0 %
Suburban 2 27 4,059,956 90.2 %
Total Core Portfolio 8 144 5,694,273 88.8 %
Acadia Share of Total Core
Portfolio 8 144 5,323,981 90.5 %

Fund Portfolio:
Fund II – 1 541,070 51.0 %
Fund III 1 1 4,637 91.6 %
Fund IV 1 28 1,181,762 93.0 %
Fund V – 19 6,221,185 90.6 %
Total Fund Portfolio 2 49 7,948,654 88.3 %
Acadia Share of Total Fund
Portfolio 2 49 1,666,121 86.1 %

Total Core and Funds 10 193 13,642,927 88.5 %
Acadia Share of Total Core
and Funds 10 193 6,990,102 89.5 %

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

Our primary business objective is to acquire and manage commercial retail
properties that will provide cash for distributions to shareholders while also
creating the potential for capital appreciation to enhance investor returns.
Generally, we focus on the following fundamentals to achieve this objective:

Own and operate a Core Portfolio of high-quality retail properties located
primarily in high-barrier-to-entry, densely-populated metropolitan areas and
create value through accretive development and re-tenanting activities coupled
with the acquisition of high-quality assets that have the long-term potential to
outperform the asset class as part of our Core Portfolio asset recycling and
acquisition initiative.

Generate additional external growth through an opportunistic yet disciplined
acquisition program within our Funds. We target transactions with high inherent
opportunity for the creation of additional value through:

?
value-add investments in street retail properties, located in established and
“next generation” submarkets, with re-tenanting or repositioning opportunities,
?
opportunistic acquisitions of well-located real-estate anchored by distressed
retailers, and
?
other opportunistic acquisitions which may include high-yield acquisitions and
purchases of distressed debt.
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Some of these investments historically have also included, and may in the future
include, joint ventures with private equity investors for the purpose of making
investments in operating retailers with significant embedded value in their real
estate assets.

Maintain a strong and flexible balance sheet through conservative financial
practices while ensuring access to sufficient capital to fund future growth.
SIGNIFICANT DEVELOPMENTS DURING THE SIX MONTHS ENDED JUNE 30, 2022

Investments

During the six months ended June 30, 2022, we made four new consolidated
investments in our Core Portfolio and Fund V acquired two unconsolidated
properties totaling $377.4 million, as described below ( Note 2 , Note 4 ):

On January 12, 2022, we acquired a retail condominium referred to as 121 Spring
Street located in Soho, New York City, for $39.6 million, inclusive of
transaction costs.

On February 18, 2022, we invested $97.8 million in a group of properties
referred to as the Williamsburg Collection located in Brooklyn, New York.

On March 2, 2022, we acquired a single-tenant retail building referred to as
8833 Beverly Boulevard located in West Hollywood, California, for $24.1 million,
inclusive of transaction costs.

On March 21, 2022, Fund V acquired a 90% interest in an unconsolidated venture.
The venture purchased a shopping center referred to as Wood Ridge Plaza located
in Houston, Texas, for $49.3 million, inclusive of transaction costs.

On March 30, 2022, Fund V acquired a 90% interest in an unconsolidated venture.
The venture purchased a shopping center referred to as La Frontera Village
located in Round Rock, Texas, for $81.4 million, inclusive of transaction costs.

On April 18, 2022, we acquired a group of properties referred to as the
Henderson Portfolio located in Dallas, Texas for $85.2 million inclusive of
transaction costs.

On June 27, 2022, we made an $18.5 million investment in Fund II and Mervyns II
increasing our ownership in each by 11.67% to 40% (Note1) and, subsequent to
June 30, 2022, increased our ownership further to approximately 62% through an
additional investment of $75.0 million ( Note 15 ).

In addition and as discussed below, Fund III obtained the venture partner’s
interest in its 640 Broadway investment through a foreclosure proceeding and
subsequently consolidated the property ( Note 2 , Note 4 ).

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Dispositions of Real Estate

During the six months ended June 30, 2022, we disposed of four consolidated Fund
properties, one land parcel and one unconsolidated investment as follows:

On January 26, 2022, Fund IV sold its consolidated Mayfair Shopping Center for
$23.7 million, repaid the related mortgage of $11.3 million and recognized a
gain of $7.1 million, of which the Company’s proportionate share was $1.8
million ( Note 2 ).

On February 1, 2022, Fund V sold a land parcel at its consolidated New Town
Center property for $2.2 million, and recognized a gain of $1.8 million, of
which the Company’s proportionate share was $0.4 million. Fund V used a portion
of the proceeds to repay $1.1 million of the property’s mortgage ( Note 2 ).

On February 9, 2022, Fund III sold its consolidated Cortlandt Crossing property
for $65.5 million and repaid the related debt of $34.5 million. Fund III
recognized a gain of $13.3 million, of which the Company’s proportionate share
was $7.1 million ( Note 2 ).

On March 4, 2022, Fund IV sold its consolidated Dauphin Plaza property for $21.7
million and repaid the related debt of $12.0 million. Fund IV recognized a gain
of $6.6 million, of which the Company’s proportionate share was $1.7 million
( Note 2 ).

On March 9, 2022, we sold our interest in Self Storage Management, for $6.0
million and recognized a gain of $1.5 million ( Note 4 ). We acquired Fund
III’s unconsolidated interest in Self Storage Management from the shareholders
of Fund III earlier in the quarter.

On May 25, 2022, Fund IV sold its consolidated Lincoln Place shopping center for
$40.7 million, repaid the related debt of $22.7 million and recognized a gain of
$12.2 million, of which the Company’s proportionate share was $3.0 million
( Note 2 ).

We recognized aggregate gains of $41.0 million on the sales of the above
properties during the six months ended June 30, 2022, of which our share is $9.8
million.

Financing Activity

During the six months ended June 30, 2022, we ( Note 7 ):

entered into a new $175.0 Million Term Loan facility

extended five Fund mortgages totaling $140.4 million (excluding principal
reductions of $1.1 million);

modified and extended one mortgage and the Fund IV Bridge Loan which had
outstanding balance of $20.8 million and $42.2 million(excluding principal
reduction of $8.4 million), respectively, prior to modification;

repaid one Core mortgage of $12.3 million and four Fund mortgages in an
aggregate amount of $80.9 million in connection with the sales of properties
( Note 2 );

entered into one new mortgage at a Fund property for $50.2 million and two new
mortgages at unconsolidated properties totaling $87.8 million; and

made scheduled principal payments of $3.5 million and repaid $17.0 million on
the Fund IV bridge facility.

Structured Financing Investments

In January 2022, as discussed above, Fund III foreclosed upon its $5.3 million
note receivable, which had previously been in default. In addition, one Core
Portfolio loan receivable remains in default at June 30, 2022. In May 2022, the
Company received full payment on a $16.0 million first mortgage loan ( Note
3 ).

Equity Sales

We sold 374,587 and 5,525,419 of our Common Shares during the three and six
months ended June 30, 2022 for net proceeds of $8.0 and $119.5 million,
respectively, through our ATM Program ( Note 10 ).

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RESULTS OF OPERATIONS

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

Comparison of Results for the Three Months Ended June 30, 2022 to the Three
Months Ended June 30, 2021

The results of operations by reportable segment for the three months ended June
30, 2022 compared to the three months ended June 30, 2021 are summarized in the
table below (in millions, totals may not add due to rounding):

Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021 Increase (Decrease)
Core Funds SF Total Core Funds SF Total Core Funds SF Total
Revenues $ 53.2 $ 31.0 $ – $ 84.3 $ 46.0 $ 27.1 $ – $ 73.1 $ 7.2 $ 3.9 $ – $ 11.2
Depreciation and
amortization (20.1 ) (14.9 ) – (35.0 ) (17.3 ) (13.2 ) – (30.5 ) 2.8 1.7 – 4.5
Property operating
expenses and real estate
taxes (14.9 ) (10.3 ) – (25.2 )

(14.2 ) (10.6 ) – (24.9 ) 0.7 (0.3 ) –

0.3

General and
administrative expenses – – – (10.7 ) – – – (10.7 ) – – – –
Gain (loss) on
disposition of
properties – 12.2 – 12.2 – 5.9 – 5.9 – 6.3 – 6.3
Operating income (loss) 18.2 18.1 – 25.6 14.5 9.1 – 12.9 3.7 9.0 – 12.7
Interest and other
income – – 3.0 3.0 – – 2.1 2.1 – – 0.9 0.9
Realized and unrealized
holding gains (losses)
on investments and other – (26.4 ) 0.1 (26.3 ) – 2.8 (1.0 ) 1.8 – (29.2 ) 1.1 (28.1 )
Equity in earnings
(losses) of
unconsolidated
affiliates 0.8 0.5 – 1.3 0.7 0.2 – 0.9 0.1 0.3 – 0.4
Interest expense (8.5 ) (10.7 ) – (19.2 ) (7.4 ) (9.7 ) – (17.1 ) 1.1 1.0 – 2.1
Income tax (provision)
benefit – – – (0.2 ) – – – (0.2 ) – – – –
Net income (loss) 10.5 (18.5 ) 3.1 (15.8 ) 7.8 2.5 1.1 0.5 2.7 (21.0 ) 2.0 (16.3 )
Net (income) loss
attributable to
noncontrolling interests (0.4 ) 15.8 – 15.5 (0.4 ) 3.7 – 3.3 – 12.1 – 12.2
Net income (loss)
attributable to Acadia $ 10.1 $ (2.7 ) $ 3.1 $ (0.4 ) $

7.4 $ 6.1 $ 1.1 $ 3.7 $ 2.7 $ (8.8 ) $ 2.0 $ (4.1 )

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 $2.7 million for the three months
ended June 30, 2022 compared to the prior year period as a result of the changes
further described below.

Revenues for our Core Portfolio increased $7.2 million for the three months
ended June 30, 2022 compared to the prior year period primarily due to (i) a
$4.3 million increase from Core Portfolio property acquisitions in 2021 and
2022, (ii) a $1.5 million collection of cash for a fully reserved tenant, (iii)
$1.1 million from tenant termination income (iv) $1.0 million from the write off
of a tenant’s below market lease and (v) $0.9 million from lease up within the
Core Portfolio. These increases were offset by a $1.4 million increase in credit
loss reserves in 2022.

Depreciation and amortization for our Core Portfolio increased $2.8 million for
the three months ended June 30, 2022 compared to the prior year period primarily
due to Core Portfolio property acquisitions in 2021 and 2022.

Interest expense for our Core Portfolio increased $1.1 million for the three
months ended June 30, 2022 compared to the prior year period primarily due to
higher average outstanding borrowings in 2022.

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 decreased $8.8 million for the three months ended June 30, 2022
compared to the prior year period as a result of the changes described below.

Revenues for the Funds increased $3.9 million for the three months ended June
30, 2022 compared to the prior year period primarily due to (i) $4.7 million
from consolidated Fund property acquisitions in 2021 ( Note 2 ), and (ii) $1.7
million from lease up within the Funds. these increases were partially offset by
a $3.0 million decrease from Fund property dispositions in 2021 and 2022.

Depreciation and amortization for the Funds increased $1.7 million for the three
months ended June 30, 2022 compared to the prior year period primarily due to
consolidated Fund acquisitions in 2021.
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Gain on disposition of properties for the Funds increased $6.3 million for the
three months ended June 30, 2022 compared to the prior year period due to the
sale of Lincoln Place at Fund IV in 2022 compared to the sales of 654 Broadway
at Fund III and the NE Grocer Portfolio and 110 University at Fund IV in 2021
( Note 2 ).

Realized and unrealized holding gains (losses) on investments and other for the
Funds decreased $29.2 million for the three months ended June 30, 2022 compared
to the prior year period, due to a decrease in the mark-to-market adjustment on
the Investment in Albertsons.

Interest expense for the Funds increased $1.0 million for the three months ended
June 30, 2022 compared to the prior year period primarily due to $0.7 million
from higher average rates and $0.4 million from higher average outstanding
borrowings in 2022.

Net (income) loss attributable to noncontrolling interests for the Funds
increased $12.1 million for the three months ended June 30, 2022 compared to the
prior year period based on the noncontrolling interests’ share of the variances
discussed above. Net loss attributable to noncontrolling interests in the Funds
includes asset management fees earned by the Company of $2.4 million and $3.0
million for the three months ended June 30, 2022 and 2021, respectively.

Structured Financing

Interest and other income for the Structured Financing portfolio increased $0.9
million for the three months ended June 30, 2022 compared to the prior year
period due to new loans issued during 2021. Realized and unrealized holding
(losses) gains on investments and other increased $1.1 million for the Structure
Financing Portfolio for the three months ended June 30, 2022 compared to the
prior year due to a decrease in the allowance for credit loss.

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.”

Comparison of Results for the Six Months Ended June 30, 2022 to the Six Months
Ended June 30, 2021

The results of operations by reportable segment for the six months ended June
30, 2022 compared to the six months ended June 30, 2021 are summarized in the
table below (in millions, totals may not add due to rounding):

Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021 Increase (Decrease)
Core Funds SF Total Core Funds SF Total Core Funds SF Total
Revenues $ 101.6 $ 64.2 $ – $ 165.8 $ 88.4 $ 52.9 $ – $ 141.2 $ 13.2 $ 11.3 $ – $ 24.6
Depreciation and
amortization (37.7 ) (30.9 ) – (68.7 ) (34.2 ) (27.0 ) – (61.2 ) 3.5 3.9 – 7.5
Property operating
expenses and real
estate taxes (29.6 ) (20.3 ) – (49.8 ) (27.9 ) (21.4 ) – (49.3 ) 1.7 (1.1 ) – 0.5
General and
administrative expenses – – – (22.6 ) – – – (19.6 ) – – – 3.0
Gain (loss) on
disposition of
properties – 41.0 – 41.0 4.6 5.9 – 10.5 (4.6 ) 35.1 – 30.5
Operating income (loss) 34.3 54.0 – 65.7 30.9 10.4 – 21.7 3.4 43.6 – 44.0
Interest and other
income – – 5.9 5.9 – – 3.8 3.8 – – 2.1 2.1
Realized and unrealized
holding gains (losses)
on investments and
other 1.2 (11.8 ) 0.1 (10.6 ) – 9.4 (2.4 ) 7.0 1.2 (21.2 ) 2.5 (17.6 )
Equity in earnings
(losses) of
unconsolidated
affiliates 2.4 2.0 – 4.4 (0.5 ) 3.2 – 2.8 2.9 (1.2 ) – 1.6
Interest expense (16.1 ) (21.0 ) – (37.1 ) (14.6 ) (19.1 ) – (33.7 ) 1.5 1.9 – 3.4
Income tax (provision)
benefit – – – – – – – (0.3 ) – – – 0.3
Net income (loss) 21.7 23.2 6.0 28.3 15.9 3.9 1.3 1.1 5.8 19.3 4.7 27.2
Net (income) loss
attributable to
noncontrolling
interests (1.5 ) (10.3 ) – (11.8 ) (1.0 ) 8.4 – 7.4 (0.5 ) (18.7 ) – (19.2 )
Net income (loss)
attributable to Acadia $ 20.2 $ 12.9 $ 6.0 $ 16.5 $ 14.8 $ 12.3 $ 1.3 $ 8.5 $ 5.4 $ 0.6 $ 4.7 $ 8.0

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 $5.4 million for the six months ended
June 30, 2022 compared to the prior year period as a result of the changes
further described below.
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Revenues for our Core Portfolio increased $13.2 million for the six months ended
June 30, 2022 compared to the prior year period primarily due to (i) $6.0
million from Core Portfolio property acquisitions in 2021 and 2022, (ii) a $1.5
million collection of cash for a fully reserved tenant, (iii) $1.3 million
decrease in credit loss reserves in 2022 related to the COVID-19 Pandemic
( Note 11 ), (iv) $1.1 million from tenant termination income, (v) $1.0
million from the write off of a tenant’s below market lease, (vi) $0.9 million
from the conversion of tenants from cash to accrual basis, and (vii) $0.9
million from lease up within the Core Portfolio.

Depreciation and amortization for our Core Portfolio increased $3.5 million for
the six months ended June 30, 2022 compared to the prior year period primarily
due to Core Portfolio property acquisitions in 2021 and 2022.

Property operating expenses and real estate taxes for our Core Portfolio
increased $1.7 million for the six months ended June 30, 2022 compared to the
prior year period primarily due to Core Portfolio property acquisitions in 2021
and 2022.

The gain (loss) on disposition of properties for our Core Portfolio of $4.6
million for the six months ended June 30, 2021 relates to the sale of 60 Orange
Street ( Note 2 ).

Realized and unrealized holding gains (losses) on investments and other for our
Core Portfolio includes $1.2 million for the six months ended June 30, 2022
related to the bargain purchase gain on the acquisition of the Williamsburg
Collection ( Note 2 ).

Equity in earnings (losses) of unconsolidated affiliates for our Core Portfolio
increased $2.9 million for the six months ended June 30, 2022 compared to the
prior year period primarily due to a $1.6 million decrease in credit loss
reserves in 2022 at unconsolidated properties related to the COVID-19 Pandemic
as well as $1.3 million for the acceleration of a below market lease for a
tenant.

Interest expense for our Core Portfolio increased $1.5 million for the six
months ended June 30, 2022 compared to the prior year period primarily due to
$1.8 million from higher average outstanding borrowings in 2022, partially
offset by $0.4 million from lower average interest rates in 2022.

Net (income) loss attributable to noncontrolling interests for our Core
Portfolio decreased $0.5 million for the six months ended June 30, 2022 compared
to the prior year period 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 $0.6 million for the six months ended June 30, 2022
compared to the prior year period as a result of the changes described below.

Revenues for the Funds increased $11.3 million for the six months ended June 30,
2022 compared to the prior year period primarily due to (i) $8.7 million from
consolidated Fund property acquisitions in 2021 ( Note 2 ), (ii) $2.9 million
from development projects placed in service during 2021, and (iii) a $2.3
million decrease in credit loss reserves in 2022 related to the COVID-19
Pandemic ( Note 11 ). These increases were offset by a $3.0 million decrease
from consolidated Fund property dispositions in 2021 and 2022.

Depreciation and amortization for the Funds increased $3.9 million for the six
months ended June 30, 2022 compared to the prior year period primarily due to
Fund acquisitions in 2021.

Property operating expenses and real estate taxes for the Funds decreased $1.1
million for the six months ended June 30, 2022 compared to the prior year period
primarily due to the termination of the ground lease for 110 University in 2021.

Gain on disposition of properties for the Funds increased $35.1 million for the
six months ended June 30, 2022 compared to the prior year period due to the
sales of Cortlandt Crossing at Fund III, Lincoln Place, Mayfair and Dauphin at
Fund IV and a New Towne outparcel at Fund V in 2022 compared to dispositions of
654 Broadway at Fund III and the NE Grocer Portfolio and 110 University at Fund
IV in 2021 ( Note 2 , Note 11 ).

Realized and unrealized holding gains (losses) on investments and other for the
Funds decreased $21.2 million for the six months ended June 30, 2022 compared to
the prior year period, due to a $22.8 million change in the mark-to-market
adjustment on the Investment in Albertsons offset by $ 1.5 million related to
the Company’s proportionate share of the gain on sale of Fund III’s interest in
Self Storage Management ( Note 4 ).

Equity in earnings (losses) of unconsolidated affiliates for the Funds decreased
$1.2 million for the six months ended June 30, 2022 compared to the prior year
period primarily due to the gain on sale related to two land parcels at
Riverdale Family Center in Fund V in 2021 ( Note 4 ).

Interest expense for the Funds increased $1.9 million for the six months ended
June 30, 2022 compared to the prior year period primarily due to $1.3 million
from higher average outstanding borrowings in 2022 and $0.6 million from higher
average rates in 2022.
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Net (income) loss attributable to noncontrolling interests for the Funds
decreased $18.7 million for the six months ended June 30, 2022 compared to the
prior year period based on the noncontrolling interests’ share of the variances
discussed above. Net loss attributable to noncontrolling interests in the Funds
includes asset management fees earned by the Company of $4.8 million and $6.1
million for the six months ended June 30, 2022 and 2021, 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 $2.1 million for the six months
ended June 30, 2022 compared to the prior year period primarily due to new notes
issued in 2021. Realized and unrealized holding gains (losses) on investments
and other for the Structured Financing Portfolio increased $2.5 million for the
six months ended June 30, 2022 compared to the prior year due to a decrease in
the allowance for credit loss.

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 increased $3.0 million for the six months ended June 30,
2022 compared to the prior year period due to $2.0 million related to
acquisition costs ( Note 2 ) and $0.8 million from an increase in salaries and
headcount.

SUPPLEMENTAL FINANCIAL MEASURES

Net Property Operating Income

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

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

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

© Edgar Online, source Glimpses

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