Acadia Realty Trust (AKR)

AKR 
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Acadia Realty Trust (AKR)

Q2 2008 Earnings Call

July 31, 2008 12:00 pm ET

Executives

Kenneth F. Bernstein - President, Chief Executive Officer, Trustee

Michael Nelsen - Chief Financial Officer, Senior Vice President

Jon Grisham - Chief Accounting Officer, Investor Relations Contact

Analysts

Michael Bilerman - Citigroup

Michael Mueller - J.P. Morgan

Paul Adornato - BMO Capital Markets

Rich Moore - RBC Capital Markets

Christine Mcelroy - Banc Of America Securities

Presentation

Operator

Welcome to the second quarter 2008 Acadia Realty Trust earnings conference call. (Operator Instructions)

Please be aware that statements made during the call that are not historical may be deemed forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to the variety of risks and uncertainties which are disclosed in our most recent Form 10K and other periodic filings with the SEC. Forward-looking statements speak only as of the date of this call and we undertake 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 reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Please note the FFO numbers for calendar year 2007 have been adjusted as set forth in the reconciliation.

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’d like to turn the call over to Mr. Bernstein.

Kenneth F. Bernstein

Before we discuss our quarterly results I’d like to comment briefly on where we see the current market environment and how we’ve been positioning Acadia accordingly. With the commercial credit crisis now over a year old we’re beginning to see the impact on our industry both in terms of debt availability and in terms of asset values. Simultaneously we’re also beginning to see the slowdown in the economy impacting industry fundamentals. However, neither the credit crunch nor the sluggish economy are impacting all properties or all companies equally and that differentiation process which we’ve been talking about for the past several quarters is beginning to play out. And while both asset pricing and fundamentals for secondary assets clearly began to soften in the second quarter, pricing and fundamentals for the higher quality locations, the kind that we generally are interested in acquiring either as opportunistic purchases or via redevelopments, those did not yet sufficiently shift in pricing to pull us off the sidelines as buyers.

So with this in mind here are the actions that we’ve been taking to position ourselves with respect to our core portfolio, our balance sheet, our existing development pipeline, and new investment opportunities.

First in terms of our core portfolio, as a result of aggressively culling our portfolio over the past several years and rotating into higher barrier-to-entry supply constraint properties in strong markets we’ve so far seen little negative impact in our core results which year-to-date remains stable. In fact, the small drop in our quarterly occupancy this quarter was not driven by economic weakness but rather the re-anchorings in two of our properties which subsequent to the second quarter were completed and should add back about 50 basis points of occupancy when they open later this year. Furthermore, while we remain very cautious as to retailer performance in general and don’t expect any portfolios to be immune to a longer term or severe consumer slowdown, we expect the majority of the pain to be felt in secondary and tertiary properties and that there’ll be even a further widening of the performance gap between the higher and lower quality properties.

Second, in terms of our balance sheet, balance metrics, strong access to debt inequity, and limited debt maturities are going to continue to be of increased importance. At Acadia we’re carefully using our capital so as to ensure that our balance sheet remains in a position to take advantage of the opportunities as they begin to materialize. More specifically, and Mike will walk through this, we’ve had no on balance sheet debt maturities for almost two and a half years; we have enough capital to internally fund all of our growth initiatives for the next several years; and finally, our discretionary investment fund platform has plenty of drive power.

In terms of our existing development pipeline, while all development pipelines are coming under some level of pressure, New York City still remains a highly supply constrained market with strong tenant demand. The high demand of our locations enables us to continue to sign tenants such as Target for our Downtown Brooklyn project and the quality of our locations and the quality of our leases also seem to enable us to successfully and profitably navigate through those re-anchorings that inevitably arise such as in are Canarsie, Brooklyn and our Pelham Manor locations.

In terms of transaction activity in new investment opportunities in the second quarter we spent most of our investment efforts on shorter-term preferred equity and mezzanine investments focusing on properties and projects that we would love to own at our basis. While our stakeholders are not yet being sufficiently rewarded for us to make significant new long-term investments, in the interim and on a selective basis we do like the risk adjusted returns of mezzanine investments. With respect to transactional activities from an earnings perspective, and Jon will discuss this in further detail, most of our transactional harvesting for the year has been completed. Furthermore 2009 was fortunately never intended to be a significant fund disposition year either.

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