Acadia Realty Trust (AKR)

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Acadia Realty Trust (AKR)

Q3 2008 Earnings Call Transcript

October 30, 2008, 12:00 pm ET


Kenneth Bernstein – President and CEO

Jonathan Grisham – SVP and Chief Accounting Officer

Michael Nelson – CFO and SVP


Christine McElroy – Banc of America

Michael Bilerman – Citigroup

Michael Mueller – JP Morgan

Richard Moore – RBC Capital Markets



Good day, ladies and gentlemen, and welcome to the third quarter 2008 Acadia Realty Trust earning conference call. My name is Latrese. I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this call. (Operator instructions)

Today's presentation by management contains forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These forward-looking statements represent the company's present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today.

These risk factors include changes in general economy conditions, recent geo-political events, increased compensation, work stoppages and slow downs, exchange rate fluctuations, variations in the mixed of products sold, fluctuations in effective tax rate resulting from shift and sources of income, and the ability to successfully integrate and operate acquired businesses. Further information on these risk factors is included in the company's filing with the Securities and Exchange Commission.

And at this time, I would like to hand the presentation over to your host for today's call, Mr. Ken Bernstein, President and Chief Executive Officer of Acadia Realty Trust. Please proceed, sir.

Kenneth Bernstein

Thank you. Good afternoon. Thank you for joining our third quarter call. Before we discuss our quarterly results, I'd like to comment briefly on the current market conditions, the impact on our sector and how we have positioned Acadia so that we're able to respond to the current and anticipated environment.

While many of us have over the past few years been preparing for some level of correction, even perhaps, wishing for it so as to enable more attractive entry points for new investments, it would have been hard to imagine a meltdown in the capital markets as severe and as widespread as we're now experiencing. Not only does this caution us to be careful about what we wish for in the future, but even those of us who are well-positioned need to make sure that we're not exposed to risks that until recently, were not front center on our radar screen.

The credit crisis is now over a year old and has spilled over into full blown economic crisis and while our industry is clearly being impacted both in terms of operating fundamentals, debt availability and asset values, we're still in the early stages of trying to determine what the ultimate impact will be both in terms of the recessionary impact on rents and the impact of the credit crisis on cost of debt and ultimately asset values.

While we don't think that we are in any way uniquely qualified to forecast precisely how this crisis is going to play out, it's worth discussing what we're seeing right now and how we have positioned ourselves to address the current environment. As a general overview, the key themes that we'll address today during the call are first, operating fundamentals, second, balance sheet exposure and assets to capital, third, our development pipeline, and finally, the status of new investment opportunities.

First, in terms of fundamentals, whether looking at our third quarter operating results or our current collections data, we're not yet seeing a material softening in our fundamentals commensurate with the newspaper headlines. We expect that several factors are at work here.

First of all, our core portfolio consists primarily high-barrier-to-entry assets in supply constrained markets. Over the past several years we've aggressively called our portfolio by selling off the bottom half of it and rotating into high-barrier-to-entry, supply constrained properties in strong markets. Today, the vast majority of our properties are well located and anchored by either necessity based grocery and drug tenants or value oriented discounters.

Even in a softening economy, these types of tenants, especially the super markets and discounters, often experience positive same-store results and gain market share. Even for those tenants who are slowing their expansion or shrinking elsewhere in the country, because of the tight supply of real estate in our markets, they seem to retain their locations more often than not.

That being said, for many retailers, this has been one of the most difficult years in a long time, and we doubt that 2009 will be any easier for those tenants. We remain very caution as to retailer performance in general and don't expect any portfolios to be immune to what could be a longer-term and severe consumer slow down.

Finally, as relates to fundamentals, we need to recognize that to some extent, we're looking at lagging indicators. While our experience tells us that higher quality locations tend to out perform both in terms of operating performance as well as value retention, only time will tell just how resilient any one's portfolio will be.

The second component, balance sheet and access to capital. It's clear that debt is very scarce and expensive right now, especially for larger transactions. Balance sheet metric, strong access to debt and equity and limited debt maturity are going to continue to be of increased importance.

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