Acadia Realty Trust Inc. Q4 2008 Earnings Call Transcript

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Acadia Realty Trust Inc. (AKR)

Q4 2008 Earnings Call

February 12, 2009; 12:00 pm ET

Executives

Kenneth Bernstein - President & Chief Executive Officer

Michael Nelsen - Chief Financial Officer

Jon Grisham- Chief Accounting Officer

Analysts

Michael Mueller - J.P. Morgan

Michael Bilerman - Citi

Rich Moore - RBC Capital Markets

Alan Seymour - Columbia Management

Alex Barron - Agency Trading Group

Presentation

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2008 Acadia Realty Trust earnings conference call. My name is Shane and I’ll be your operator for today. At this time all participants in a listen-only mode. We’ll facilitate the question-and-answer session towards the end of the conference.

Please be aware that statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the securities and exchange act of 1934. Actual results may differ materially from those indicated by such forward-looking statements.

Due to the variety of risk and uncertainties which are disclosed in the company’s most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call and the company undertakes no duty to update them.

During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Acadia’s earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures.

Participating in today’s call will be Kenneth Bernstein, President and Chief Executive Officer; Michael Nelsen, Chief Financial Officer; and Jon Grisham, Chief Accounting Officer. Following management’s discussions, there will be an opportunity for all participants to ask questions.

At this time I would now like to turn the call over to Mr. Bernstein. Please proceed.

Ken Bernstein

Thank you. Good afternoon. Thanks for joining us. As we review our results and discuss how we positioned ourselves going forward, we need to do so in the context of the continued turmoil in both the credit markets and in the overall economy. We are all confronting serious issues affecting our economy and our industry, ranging from deflation to de-leveraging and from a frozen credit market to a frozen consumer.

While this turmoil is beginning to create opportunities, any management team that is not adequately sobered by these issues is lacking both sense and prudence. So, today along with reviewing our earnings, we’ll review the key components of our business; first, our core portfolio and operating fundamentals; second, our balance sheet, liquidity and maturity schedules; and third, our external growth platform.

In terms of our operating fundamentals, our fourth quarter core performance continued to be solid. We are acutely aware of the softness in the economy and while we have yet to incur a material drop in occupancy or revenues, we’re very focused on the potential short-term impact to our industry, from this softness and seeing it eventually creep into our portfolio.

Keep in mind that our core portfolio consists of primarily higher barrier to entry assets in supply constrained markets, 84% of our portfolio is anchored by either necessity based grocery and drugstore tenants or value oriented discounters. While we think that in the long run higher quality assets and higher barrier to entry markets will outperform their counterparts, we don’t think any portfolio is immune to the current softening.

As such, we’re taking a very cautious view of short term core portfolio performance and as Jon will later discuss, we’re holding a fairly wide range of potential same store NOI reserves. It’s not that we know with any unique clarity how 2009 will play out, but rather because of this uncertainty and steady stream of negative data, we think it makes most sense to be prepared.

Second, we’ll review our balance sheet. Our balance sheet remains in a solid position. As Mike will walk through, as of the fourth quarter we had about $117 million in cash and line availability. No material on-balance sheet debt maturities until December of 2011. We also have limited debt exposure at our fund level, both in terms of maturities and loan to values and finally if need be, we continue to have enough capital to internally fund our existing needs for the next several years.

The third component; our external growth platform which is primarily driven by our investment funds. The structure of our discretionary investment fund provides us with access to capital enabling us to take advantage of opportunities as they emerge, without having to be overly dependent on the public markets of equity. Our current fund, Fund III, is alive and well. Even after our recent acquisition this year, it still has approximately $350 million of its original $500 million of equity commitments available for future acquisitions.

The investment management business has come under intense scrutiny. Some of it’s justified, but keep in mind, not all funds are created equal. There’s a huge distinction between those funds that are discretionary, not subject to near term redemptions, have solid long-term investors and access to attractively priced subscription lines, as compared to those funds that are not discretionary, and have been effectively frozen out from making future investments in this market.

Just because we have dry powder doesn’t mean that it’s the right time to use it. We believe that we’re still early into the process of price correction and that our stakeholders need to be very well rewarded for us moving early off the sidelines.

In the case of our recent acquisition, we felt adequately protected on the down side and well incentiveized on the up side to move, but until there is better clarity in the markets, our investment focus will continue to emphasize discipline and patience.

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