Acadia Realty Trust (AKR)

AKR 
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Acadia Realty Trust (AKR)

Q1 2010 Earnings Call Transcript

April 28, 2010 12:00 pm ET

Executives

Kenneth Bernstein – President and CEO

Jon Grisham – SVP and Chief Accounting Officer

Analysts

Todd Thomas – KeyBanc Capital Markets

Christy McElroy – UBS

Sheila Mcgrath – KBW

Michael Mueller – J.P. Morgan

Quentin Velleley – Citi

Paul Adornato – BMO Capital

Craig Schmidt – Banc of America

Rich Moore – RBC Capital Markets

Andrew Dizio – Janney Montgomery Scott

Presentation

Operator

Good day, ladies and gentlemen and welcome to the first quarter 2010 Acadia Realty Trust earnings conference call. My name is Amika and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session toward the end of the conference. (Operator Instructions)

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 risks 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 Arcadia's earnings press release posted on the website for reconciliation 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 discussions, there will be an opportunity for all participants to ask a question.

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

Kenneth Bernstein

Thank you. Good afternoon. Today, I am going to start with a brief overview of the progress we made in the first quarter and the trends we’re seeing and then John will review our earnings, operating metrics, key drivers and then Mike, Jon and I will take questions.

As a general overview, why we feel we’re still in the early stages of a recovery in the first quarter, we saw further strengthening of operating fundamental as the economy continue to stabilize. We also saw a surprisingly robust improvement in the capital markets with increased availability and stronger pricing for both debt and equity. So today, we will discuss how these improvements are impacting the key components of our business, most notably our core portfolio, our balance sheet and our external growth platform.

In terms of portfolio performance in the first quarter, the improvements in the economy led to the portfolio performing at the higher end of our expectations while thanks to NOI and occupancy did decline, these declines were driven by the two previously discussed vacancies and excluding them would have produce another Y positive result. Furthermore, along with the leasing environment, the new space improving in the first quarter, we also saw improvements in the performance of our existing tenants in terms of default collections sales performance.

As we discussed in our last call, we originally expected to see our portfolio occupancy decline in the first and the second quarters of the year and then recover ending the year at flat or higher rates. Now, one quarter into the year and borrowing any unforeseen setbacks, it looks as though we found about in the first quarter and the declines were milder than anticipated. And while NOI growth will still lag occupancy increases by a couple of quarters, we see declines bottoming out this year as well and likely reversing as we head into 2011.

Second, in terms of our balance sheet and liquidity, the improvements in the capital markets also benefited our already strong balance sheet. If you review the financial ratios and data set forth in our earnings release in on page 23 of our supplement, you will see that we continue to focus on maintaining a strong balance sheet with plenty of flexibility.

Third, finally our external growth initiatives. In general, in the first quarter, we saw the continuation of the phenomena on that began at year end. The various reasons not withstanding inevitable multi-year de-leveraging process that our industry is going to have to go through.

In the first quarter, there remained a shortage of quality assets to acquire. This shortage is causing the balance where albeit on a very limited volume, there are more buyers and sellers, especially for higher quality assets and that’s causing cap rates to compress significantly and in some instances actually return to almost pre-cash levels. While it’s hard to tell how and when this imbalance plays out.

On one hand, we had a trillion dollar commercial real estate debt wall to climb over. And on the other hand, capital’s becoming more and more available to take down assets as they come to market, thus greatly reducing the risk of that commercial real estate is the so called next shoe to drop.

Either way, the impacts of Acadia is likely to be both positive in terms of our existing core portfolio and even more so our redevelopment pipeline. And then perhaps negative in terms of easy deployment of our dry powder for distressed opportunities. But the reasons that I’ll outline we believe that we’re well positioned or hedged irrespective of precisely how these competing forces play out.

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