Acadia Realty Trust (AKR)

AKR 
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Industry: Consumer Services
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Acadia Realty Trust (AKR)

Q1 2013 Earnings Conference Call

April 24, 2013 10:00 ET

Executives

Amy Rancanello - Vice President, Capital Markets and Investments

Kenneth Bernstein - President and Chief Executive Officer

Jon Grisham - Chief Financial Officer

Analysts

Todd Thomas - KeyBanc Capital Markets

Craig Schmidt - Bank of America

Christy McElroy - UBS

Ross Nussbaum - UBS

Josh Patinkin - BMO Capital Markets

Michael Mueller - JPMorgan

Presentation

Operator

Welcome to the First Quarter 2013 Acadia Realty Trust Earnings Conference Call. As a reminder, this conference is being recorded. At this time, all audience lines have been placed on mute. We will conduct a question-and-answer session following the formal presentation. (Operator Instructions).

I will now turn the call over to Amy Rancanello, Vice President of Capital Markets and Investments. Please proceed.

Amy Rancanello - Vice President, Capital Markets and Investments

Good afternoon and thank you for joining us for the first quarter of 2013 Acadia Realty Trust earnings conference call. Participating in today’s call will be Kenneth Bernstein, President and Chief Executive Officer; and Jon Grisham, Chief Financial Officer.

Before we begin, please be aware that statements made during the call that are not historical maybe deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934. And actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risk and uncertainties including those 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 April 24, 2013 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.

With that, I will now turn the call over to Ken Bernstein.

Kenneth Bernstein - President and Chief Executive Officer

Thank you, Amy. Good morning. Thanks for joining us. Today I’ll start with a brief overview of some of the trends and key drivers that we’re seeing in our business, then Jon will review our operating metrics, our earnings as well as our forecast.

In terms of the market in general, in the first quarter we saw a continuation of many of the trends that we’ve seen over the last year, in terms of the capital markets, cap rates and bond spreads continue to tighten. In the public markets, the majority of this activity appear to be in pursuit of the higher yielding investment opportunities whereas in the private market it appears as though we saw greater cap rate compression for the higher quality core assets especially those in the gateway markets.

And while it maybe worse, noting these divergent trends from Acadia’s perspective, since we participate in a fairly broad range of investment themes through our dual platforms. We can remain fairly agnostic or opportunistic as to where and how we choose to allocate our resources. But irrespective of the enthusiasm perhaps, exuberance that we’re seeing in the capital markets what we can’t do is confused this momentum with the realties of our industries operating fundamentals, because in the long run its our tenants performance, its our tenant demand that really drives our business. And just because cap rates are declining doesn’t mean that rental demand is increasing.

What we’re seeing is that, well the overall market is nicely improving, it’s primarily in our most dense suburban locations or even more so or a high-street and urban locations where there seems to be sufficient tenant sales growth and leasing demand to really drive the prospects for healthy long-term growth.

So with that in mind, let’s look at each of our dual platforms first our core portfolio, our first quarter same-store results look solid, they were at the higher end of our expectations and even after stripping out the contributions from several of our previously discussed re-anchorings our same-store NOI growth for the quarter was still a very solid 5.6%.

Its probably worth noting that inclusive of our most recent core acquisitions, street and urban retail now represents over a third of our core NOI that’s nearly double, where it was a few years ago and keep in mind that given the significant amount of acquisitions that closed over the last year or so. Over half of our street-retail portfolio is still not in our currently reported 2013 same-store NOI. So it’s our expectation there over any extended period of time and on a stabilized basis street-retail should provide us about a 100 basis points higher contractual NOI growth that are more traditional suburban assets that we are optimistic that over the next several years our same-store NOI growth should be stronger with the addition of these high-street assets then if we had simply stuck with our strong but suburban portfolio.

In terms of core acquisition activity in the first quarter we made an important $86 million addition to our Chicago Street Retail Portfolio with the acquisition of 664 North Michigan Avenue. Complementing our already exciting retail properties on Chicago’s Gold Coast and at Lincoln Park is this property is at the base of the New Ritz Carlton residential condos it’s in the heart of the eight blocks that make up Chicago’s Magnificent Mile

Our property is leased to tenants including Tommy Bahama and Ann Taylor Loft with neighboring tenants ranging from Apple and Niketown to Burberry and Cartier. North Michigan Avenue with approximately 40,000 pedestrians daily is one of the most heavily traffic retail shopping districts in the country. And we were fortunate that this acquisition was priced about a year ago since the seller had to complete various conditions associated with the new residential condos above us and that’s the leasing with the key tenants was also priced over a year ago. So the improvements in both the leasing market and the transaction market over the past year certainly new to our favor.

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