Acadia Realty Trust (AKR)

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Acadia Realty Trust (AKR)

Q2 2014 Earnings Conference Call

July 30, 2014 12:00 p.m. ET


Amy Rancanello – VP, Capital Markets and Investments

Ken Bernstein – President and CEO

Jon Grisham – SVP and CFO


Christy McElroy - Citigroup

Todd Thomas - KeyBanc Capital Markets

Jay Carlington - Green Street Advisors

Craig Schmidt - BofA Merrill Lynch

Paul Adornato - BMO Capital Markets

Jim Sullivan - Cowen and Company

Rich Moore - RBC Capital Markets

Ross Nussbaum - UBS

Michael Mueller - JPMorgan



Welcome to the Acadia Realty Trust earnings conference call. My name is Vanessa and I'll be your operator for today's call. (Operator Instructions) And I will now turn the call over to Amy Rancanello, vice president of capital markets and investments. You may begin.

Amy Rancanello

Good afternoon and thank you for joining us, for the second quarter 2014 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, July 30, 2014 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. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue and we will answer as time permits.

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

Ken Bernstein

Thank you, Amy. Good afternoon, thanks for joining us. Today I will start with an overview of our second quarter results and then Jon will review our earning and operating metric.

As a general overview, during the second quarter we made significant progress across both our core portfolio as well as our fund platform. It was another quarter of continued improvement in operating fundamentals for both our street retail as well as our suburban assets. That being said, the street retail portion of our portfolio continues to outperform both our expectations in terms of operating performance as well as capital market interest.

First, a few key highlights from our core portfolio. During the second quarter our properties delivered strong same store NOI growth of 4.9% which this quarter was driven most notably by our Chicago street retail portfolio. As we discussed on previous calls, we expect that our street retail property should provide superior growth over any extended period of time compared to our suburban portfolio and that is going to be driven by approximately 100 basis points per year of contractual rent outperformance and then more frequent and hopefully more profitable mark to market opportunities. So far our second quarter and year to the results are consistent with that feat [ph].

Now in terms of our core portfolio acquisition activity, during and subsequent to the second quarter we completed acquisitions of 102 million of properties and put another 68 million under contract. As we previously discussed, we anticipate that the majority of our acquisition activity will be street retail focus and consistent with these goals during the second quarter we expanded our presence in Manhattan’s Soho submarket. As we previously discussed in April we acquired a property located on Spring Street, then at quarter end did we enter into a contract to acquire another equally well located Soho asset. We will provide further color after that transaction closes but this will be another off market OP unit transactions similar to our Tribeca acquisition at year-end.

We’re finding that having the ability to issue tax-deferred OP units is a good way for us to differentiate ourselves from the broader market which is primarily comprised of cash buyers. And we like the fact that when owners of high quality street retail assets consider an OP unit transaction, they recognize the compatibility with our high-quality portfolio and as a result we’re on a relatively short list.

Along with our street retail acquisitions at the same time we’re going to continue to complement the high street assets by selectively adding properties located in densely populated urban as well as supply constrained suburban markets. For example, during the second quarter we acquired a well located asset situated directly across the street from Kings Plaza in Brooklyn. This property was acquired from CapitalOne. We locked in the pricing approximately a year ago prior to the property stabilization which then enabled us to acquire the asset at a cap rate in the sixes, it would trade for better pricing today.

Subsequent to the second quarter, we also added a supermarket anchor property with extremely high barriers to entry located in Westchester county and this property benefits from the affluence of the immediate trade area which is reflected in the average household income of nearly $200,000. The property was acquired for $47 million at a yield similar to our Brooklyn acquisition. The center has older primarily below-market leases and in the long-term there could be an opportunity to expand the very high-performing supermarket.

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