Acadia Realty Trust (AKR)

AKR 
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Acadia Realty Trust (AKR)

Q3 2013 Earnings Conference Call

October 23, 2013 12:00 PM ET

Executives

Amy Rancanello - VP, Capital Markets and Investments

Kenneth Bernstein - President and CEO

Jon Grisham - Chief Financial Officer

Analysts

Todd Thomas - KeyBanc Capital Markets

Craig Schmidt - Bank of America

Rich Moore - RBC Capital Markets

Josh Pitinkin - BMO Capital Markets

Presentation

Operator

Welcome to third 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

Good afternoon and thank you for joining us for the third quarter 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 may be 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 risks 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, October 23, 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

Thank you, Amy. Good afternoon. We’re pleased with our third quarter results, which are indicative of the progress that we’ve made on multiple fronts. Our earnings increased 19% for the quarter and we project that our earnings for the year will be up between 17% and 20%. Our same-store NOI growth was a solid 4.8% this quarter and up 8.4% year-to-date, driven by a combination of accretive re-anchoring activities, occupancy gains and positively lease rents. Our transactional activity both as a buyer and a seller was appropriately disciplined in light of fluctuations in the marketplace. And finally, we continue to maintain low leverage and strong liquidity ensuring that we’re both well insulated from any short-term market volatility as well as position to sustain our company’s long-term growth.

So with that in mind, I will review the progress that we made this quarter. First, with respect to our core portfolio, leasing efforts for our three re-anchoring projects are now substantially completed. Most recently at our Crossroad Shopping Center located here in Westchester, we replaced a former and two supermarkets with DSW and PetSmart more than doubling the rent in the process.

Elsewhere in our portfolio we continued to harvest embedded value for example at our Brandywine Town Center which is a 1 million square foot power center located in Wilmington, Delaware. We signed a lease with Bob's Discount Furniture for space that was formerly an underutilized Atrium asset property. This lease will generate incremental NOI of approximately $600,000 a year, with the cost to retrofit this space gain about $1.1 million. The retailer there, it is anticipated to open during the first half of 2014.

hen on the core acquisition front, given the sell-off in the bond and REIT markets and the power funding increase in our cost of capital, this summer we somewhat have to breaks on our core external growth activity as well in our ATM program.

More recently however we are seeing an uptick in deal activity both in terms of potential larger transactions as well as single asset acquisitions. And more importantly, looking beyond just one quarter volume over the past 24 months, we continue to enhance the quality of our core portfolio through the acquisitions of approximately $345 million of core assets. These investments increased our core portfolio's total gross asset value by 45% and more importantly underscored our continued emphasis on upper quartile acquisitions. So today, more than 75% of our top quartile is comprised of these recent acquisitions.

Also worth noting we have increased our portfolios urban/street retail concentration from 15% in 2010 to almost 45% today. Going forward, we expect to continue to allocate the majority of our capital to urban and street retail assets, particularly in our gateway markets.

In terms of core dispositions, despite volatility in the public market, private real estate pricing especially for high-quality assets held firm. Accordingly we took the opportunity to execute on our ongoing asset recycling initiatives and during the third quarter we entered into a contract to sell our A&P Shopping Plaza in Boonton, New Jersey. We will continue to periodically and opportunistically engage in capital recycling for those assets that are not consistent with our long-term growth strategy.

Now turning to our fund platform. While deal will flow in the third quarter was light, our acquisition pipeline is beginning to build and we suspect that any extended volatility in the capital markets should create further interesting fund opportunities.

Funds IV currently has more than a $1 billion of dry powder on a levered basis and the investment themes that we're continuing to focus on include street retail, urban redevelopments, distressed retailer properties as well as opportunistic transactions which include both high yielding assets as well as distressed debt.

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