Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

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

Yasmine Kamaruddin – JPMorgan

Katy McConnell - Citigroup

Cedrik LaChance - Green Street Advisors

Josh Pitinkin - BMO Capital Markets

Acadia Realty Trust (AKR) Q3 2013 Earnings Conference Call October 23, 2013 12:00 PM ET

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 spreads. 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 Crossroads Shopping Center located here in Westchester, we replaced a former A&P supermarket 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 property. This lease will generate incremental NOI of approximately $600,000 a year, with the cost to retrofit this space being about $1.1 million. The retailer there, it is anticipated to open during the first half of 2014.

Then on the core acquisition front, given the sell-off in the bond and REIT markets and the [inaudible] funding increase in our cost of capital, this summer we somewhat have the brakes 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 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.

Fund 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.

In terms of dispositions, while we remain disciplined in the deployment of Fund IV's capital commitments, we also continue to opportunistically monetize our stabilized fund assets. Most notably during the third quarter we entered into a firm contract to sell Fund II's Fordham Plaza and Pelham Manor assets. During the past 12 months we've now sold or entered into contract to sell nearly $600 million of stabilized fund assets with more expected to follow.

Stabilized assets aside the balance of our fund portfolio is a nice mix of high yielding, lease-up and development asset which will continue to drive the internal growth in our fund platform going forward.

With respect to our development pipeline, several of our projects continue to advance. Most significantly during the third quarter we executed a lease with Target to co-anchor our City Point development located in Downtown Brooklyn. Target will operate its urban City Target concept on our project second level. Since 2012 Target has opened 8 City Targets in cities including Chicago, Los Angeles, San Francisco and Seattle. This will be Target’s first in New York City. The store will have an edited merchandising mix to uniquely serve Brooklyn dynamic live, work, play population.

With Target’s lease now in place, City Point is a 100% leased on levels five down to two leaving us the street and concourse levels to lease. Our anchor retailers are anticipated to begin opening in the fall of 2015. Additionally we are currently marketing [for sale the site’s] [ph] remaining residential parcel which is about 600,000 square feet.

So, in conclusion third quarter was a period of important progress. And looking ahead, we remain well positioned to create value. We can generate internal growth through lease up and development activities. We can opportunistically sell assets and we can acquire new investments both large and small, core and fund, high speed and opportunistic.

So with that I’d like to thank our team for their hard work in the third quarter and I’ll turn the call over to Jon.

Jon Grisham

Good afternoon. Both third quarter earnings and portfolio performance was at the high end of our expectations. The earnings puts us on track to exceed the high-end of our original full year forecasts, which I will go over further in just a minute but first I would like to review our core portfolio.

As Ken mentioned, same property NOI was up 4.8% for the quarter, the year-to-date result was higher at 8.4% due to the impact of our key reanchoring activities. I’d like to point out that we have expanded our disclosure in our supplement as it relates to same property NOI.

We now include line item detail for NOI, as well as same property occupancy. And looking at this detail for the quarter same property revenues net of recoverable expenses contributed 5.7% growth for the quarter. And within these revenues, two-thirds of the increase in the base rent line item was driven by positive re-leasing spreads on new and renewal leases and net lease up and then the other third was from contractual bumps in existing leases. Following this strong performance we are now bumping up our previous same property NOI guidance by another 50 basis points over last quarter. So now we expect full year NOI growth will be 6.5% to 7%.

Recall that we previously discussed our 3Q re-anchorings in the quarter which represent about $3.5 million of incremental NOI. 2013 same property NOI was boosted by reanchoring activities at our Bloomfield and Branch centers, representing about $2.6 million of this total and this is now online.

And as we announced in last night’s release, we’ve signed PetSmart and DSW at our Crossroads Center which represents another $700,000 of NOI. And we expect this to come online mid 2014. This leaves a small piece of the original $3.5 million, about $300,000 left that’s in various stages of lease negotiation. And it’s also worth noting that the newly signed leases at Crossroads represent another 1% to 1.25% of additional core portfolio NOI growth on an annual basis.

Core occupancy for the quarter is up 30 basis points from the second quarter from 93.7% to 94%. Looking at the street retail segment of portfolio, our occupancy there is up from 94.6% to 97.4%. And looking at the suburban segment occupancy is essentially flat at 93.5%. Although leased occupancy in that segment is up 70 basis points from 94.5% to 95.2%.

As I mentioned we now also disclosed same property occupancy in our supplement so comparing third quarter of ‘13 to third quarter a year ago, occupancy is up 80 basis points from 92.8% to 93.6%, and on a lease basis from 94.9% up to 95%. And consistent with last quarter we expect the year end occupancy will be at or possibly slightly above the current level.

Looking at lease spreads. For the quarter they are up 4.6% on a cash basis and 14.3% on a GAAP basis. What makes the metric a little more meaningful this quarter is that is more broad based as it includes 150,000 square feet of no renewable leases which is give or take two times our normal quarterly leasing average.

Turning to our earnings. As reported FFO for the quarter was $0.32 per share $0.93 year-to-date. The year-to-date result includes about $2 million or $0.04 of transaction expenses. So before these expenses, our FFO result is $0.97 which puts us on track to exceed original guidance. Accordingly, we’ve increased our previous range of $1.17 to $1.25 to our current forecast of $1.26 to $1.29. And just to reiterate, both our original and revised guidance is before any acquisition related expense.

Looking at the balance sheet, we continue to maintain a very low leverage platform, our net debt to EBITDA for the core is sub-IV and including our pro rata, share of the funds is 4.3 times or a 100% fixed rate in the core with latter maturities and including our pro rata, share of fund debt were 90% fixed rate overall.

In terms of liquidity, in the core we have $56 million of cash and $180 million of current facility availability and in the fund platform about $450 million of capital available in Fund IV.

As Ken mentioned, we have added $345 million of core assets over the last two years and our ATM has been an effective vehicle for match funding these acquisitions on a leverage neutral basis, while maintaining our conservative overall capital structure.

Since the beginning of ‘12, we have raised approximately $300 million of equity, the majority of which has been through the ATM, which averages out to about $34 million of proceeds per quarter.

For 2013, we have raised $76 million, although we haven't issued any equity since the end of May of this year for following the drop in REIT share prices. As REIT prices continue to recover, we will continue to see this cost efficient or will continue to use this cost efficient vehicle to match fund our core and fund acquisition programs. And while we may vary the mix of equity versus debt or any given short term period based on pricing over any extended period will maintain our low leverage model.

So, in conclusion, both of our platforms are performing well. The core portfolio continues to generate solid results. And then the funds, during the quarter we continued to do successful monetization of Fund II assets. We continue to maintain a low risk low cost capital structure and that core and fund capital available to continue to execute on our strategic plan.

With that we’ll be happy to take any questions. Operator, please open the lines up for Q&A.

Question-and-Answer Session

Operator

Thank you. We’ll now begin the question-and-answer session. (Operator Instruction). And we have Todd Thomas with KeyBanc online with a question. Please go ahead.

Todd Thomas - KeyBanc Capital Markets

Hi. Good afternoon. Jordon Saddler is here with me as well. Just a couple of questions on the investment environment, Ken, first the uptick in activity that you’re seeing, any change in cap rates at all on the properties that are hitting the market again now that rates have settled down a bit relative to where they were before the spike in rates that led to the slowdown?

Kenneth Bernstein

What we saw in the private market, especially for the higher quality assets was when rates ticked up, when reprices sold off, the selling market just more went to the sideline and did not, originally no change in pricing. So I think that what we're seeing so far has been pricing has held but there are a host of sellers now who seem to be realistic and motivated about trying to get deals done either by year-end or to meet their goals. On the opportunistic side because the CMBS market which is a pretty big funder for a bunch of entrepreneurial acquirers, because that also got disrupted on the opportunistic side on the higher yielding the seven, eight cap type deals, there we have seen some re-pricing and some interesting opportunities.

Todd Thomas - KeyBanc Capital Markets

Okay. So is it fair to say, it sounds like for the core properties you are looking at the level of competition is pretty consistent with where it was, but maybe the competition has decreased a bit for some of the fund opportunities that you are looking at?

Kenneth Bernstein

Yes. And keep in mind, we can be and afford to be fairly selective on the core side. It’s relatively small portfolio, those markets that we are focused on, our team is very much on top of deal flow. So I don’t worry as much about where the overall market is going unless we think we’re seeing a major re-pricing in one direction or another. And right now things are feeling fairly stable on the core side especially for the kind of properties that retailers seem to be most interested to get into.

Todd Thomas - KeyBanc Capital Markets

Okay. And then a question on City Point, saw that the range in the expected cost for that project were tightened a bit this quarter. I was just wondering, what specifically that reflects and then also the announcement of City Target, does that change at all the conversations that you are now having with retailers for the ground floor and concourse retail space and also what about the residential or was that sort of the City Target or that sort of anchor was that factored into your underwriting in discussions all long?

Kenneth Bernstein

It was anchored in I think the fact that Target stepped up and we’re thrilled that they did just reinforces the commitment from the retailing community and they are a great anchor especially if you haven’t been into a City Target, they are really an exciting new format. So we are seeing a host of our other retailers who will go on the first level street retailer concourse excited by that fact. But in general, the enthusiasm from the retail community has been strong either way.

In terms of the residential, everything is going according to plan and the residential market in Brooklyn as you probably know is just very strong. So we feel good about that piece of it. In terms of the narrowing of the...

Jon Grisham

Right, in terms of the cost so as you recall, previous quarters we had a fairly wide spread, it was $250 million to $340 million. We’ve now narrowed that down, Todd as you mentioned 280 to 310. The midpoint give or take is not that different, but with the signing of the Target lease and the clarity on the terms of their lease and as construction progresses gives us a little more clarity on the overall project. So that’s the main driver in terms of getting that range a little more defined at this point. It obviously still includes certain tenant reimbursements, some contractual, some projected, as well as we’ve discussed before, proceeds from the sale of [FAR] [ph] from Phase III.

Todd Thomas - KeyBanc Capital Markets

Okay. Thank you.

Operator

And we have Craig Schmidt from Bank of America on line with a question, please go ahead.

Craig Schmidt - Bank of America

Thank you. Ken or Jon, I just wondered if you are giving any feeling from the retailer that they are getting a little bit more cautious in the second half of the year and through holiday?

Kenneth Bernstein

Well, first of all what we found over the past year, year plus is that our retailers fairly consistently with only a few exceptions have really articulated a high level of discipline, so we were really never hearing that trees were going to grow to the sky this time in terms of our retailers. And I think that the discipline is good, it’s good for our industry; it means that our retailers are not pursuing growth for growth sake for the most part and our focus on opening those stores that are most profitable.

Fortunately for us is the bright spot where we are seeing retailers continuing to be very aggressive is in the street retail that we are spending a fair amount of time in because they are recognizing it’s part of their future omni-channel opportunity, that’s part of their branding and frankly the sales growth is really good.

So I haven’t seen any recent fall-off in tenant interest, but we in our portfolio we may not be the first to see it. Our retailers have been disciplined and while for our vacancy I’d love to see our retailers show some irrational exuberance while they are negotiating with just us, I think it’s good for industry overall that we are seeing them watch their sales growth, watch their renewals and act accordingly.

Craig Schmidt - Bank of America

Great. And then in terms of when we look at the Manhattan retail market, there was a real benefit to sort of a push by international retailers to grab space and it seemed to push grounds. I just wonder where you might stand in some of your other street retail and urban markets. Are they as far along as Manhattan is or is this still a benefit that could be felt either in Chicago or your Miami assets and so forth?

Kenneth Bernstein

Absolutely is being felt. If you've been on Lincoln Road in the past year you'll see H&M just opened up with a flagship and you'll see more to follow. Those global tenants that will choose to go to Chicago may be slightly different than those that will choose to go to Lincoln Road. But what we are seeing from some of the most interesting, most dynamic retailers is a global perspective. And then when they think about the United States as part of that market, they are thinking about those key gateway markets that thankfully were involved as the first one, three, five, seven stores they want to open up, separate of their A malls.

Craig Schmidt - Bank of America

Okay, great. Thanks.

Kenneth Bernstein

Sure.

Operator

(Operator Instructions). And we have Yasmine Kamaruddin for JP Morgan will ask the question. Please go ahead.

Yasmine Kamaruddin – JPMorgan

Hi. Now as for City Point, good afternoon. As for City Point was just a street in the concourse levels left to be, where do you see the stabilized yields pencilling out?

Jon Grisham

A little bit early for us to be forecasting that yield as much as I would love to. So we're going to dodge around that question, thankfully the rents that we're seeing both in terms of residential sale prices and then in terms of retail on street look good so we feel encouraged by that.

Yasmine Kamaruddin – JPMorgan

Okay. Well that sounds good. And did I hear right that street retail cap rates have been fairly steady?

Jon Grisham

Yes. Yeah, we're playing multiple ends of that spectrum so when we're a seller we want to see cap rates go down, when we're a buyer we’d like to see them go up in general especially for the gateway markets. We need to recognize that there is a long list of tenants trying to get into these locations, so a buyer and a lender is looking at it fairly bullish both from a downside perspective and then in terms of future growth. So the growth profile for those assets look strong and then global capital wants to be in those kind of asset. So cap rates have held up nicely from our perspective as a seller. And while we always are looking for opportunities, we're small enough that we’ll find more than our fair share even due to the fact that pricing is held up.

Yasmine Kamaruddin – JPMorgan

Okay, alright, sounds good. And as far, so after the sale of Pelham and Fordham what else do you think you will monetize before the end of 2014?

Jon Grisham

So we've talked before that we are looking at our two 16th Street property which will very possibly be the next to go after Pelham, Fordham and then….

Yasmine Kamaruddin – JPMorgan

Okay.

Jon Grisham

Yeah.

Yasmine Kamaruddin – JPMorgan

Great, thank you.

Operator

(Operator Instructions). We have Rich Moore from RBC Capital Markets online for question. Please go ahead.

Rich Moore - RBC Capital Markets

The acquisition targets Ken that you guys had previously just from the sounds of what your acquisition pipeline looks at the targets you had for 2013. I am assuming there may be incorrectly that you may not hit those targets at this point.

Kenneth Bernstein

Rich, first of all, we’ll see as I think mentioned a few times, we have seen a nice uptick in potential deal flow. That being said, I can’t tell you exactly which month, which deals close and I care, I guess, in terms of targets, but what I really care about is the profitability of the investments we’re making. So I don’t think we’re going to see any U shift from our general goals for the year and for multiple years. As it relates to the core we will be able to achieve those. Give or take one quarter, I don’t think I really care, Jon.

Jon Grisham

It’s right. And if you look at the midpoint of our ‘13 core acquisition guidance, it’s a little over $200 million with $120 million now. Looking at the pipeline, there is enough there to get us to that mark, but whether it have the fourth quarter ’13 or first quarter ‘14, we’ll see. But as Ken mentioned, the pipeline looks good and the timing could leak into next year, we’ll see.

Rich Moore - RBC Capital Markets

Okay, good. And then on the fund side, guys. It seems lower than what you had planned for ’13, but I realized that’s more of an opportunistic sort of activity so, but it does seem that it will be quite a bit lower than you had originally anticipated. Is that true?

Kenneth Bernstein

Yeah, and it’s nothing to apologize about. When we see great opportunities, we can jump and because we have this capital on call doesn’t cost us anything. In fact, we get paid to look for details and get paid to not do deals. But when we see those opportunities and you’ve seen us do this in the past, we will take them down and we will take them down quickly. Summer was a little quite because there was lot of confusion in the marketplace and now things feel like they are starting to heat up again, and that’s good for us.

Rich Moore - RBC Capital Markets

Then on the same-store NOI number, I mean, I kind of wrestle with this. I am curious what your thoughts are. The portfolio has obviously improved, and at the same time that you guys are turning in very good same-store traditionally, historically very high same-store results. And what do you think as you now realize you are not going to give guidance, but as you go into ’14, have the portfolio improvement that you guys have done, is that kind of ensuring a higher long-term same-store NOI growth rate you think than what traditionally has been the case?

Jon Grisham

I think there is no doubt, it certainly helps. Nothing is guaranteed obviously. But if we look at third quarter performance for example, stripping out the re-anchorings, it’s give or take 3% which is a great results for a stable quality portfolio. And you are right, I am not ready to give guidance for ‘14 at this point, but as I mentioned in my prepared remarks one thing to keep in mind is as when we look at for example Crossroads, there is another 1% plus of baked in NOI growth related to that on an annual basis. So existing portfolio re-anchoring opportunities like Crossroads, I think that bodes very well for our same-store NOI growth profile going forward.

Kenneth Bernstein

And then the other, the final piece just to remind everyone is add our street retail continues to phase in, so the acquisitions that we have made currently are not held for one year, so don’t show up, those also should with things and stabilize things as well. So those three factors are positive, right.

Rich Moore - RBC Capital Markets

Okay. And do you have Ken more, more of the re-anchoring type opportunities you think built into the portfolio somewhere?

Kenneth Bernstein

Somewhere yes, but we are not going to forecast it and here was the good news. As I pointed out, as a result of the financial crisis we got three re-anchoring opportunities back and we made money doing it, so that is the good news. The bad news is we will all have to live through the financial crisis. So guessing when the next round of recapture of below market anchors is not something I want to do right now.

Rich Moore - RBC Capital Markets

And then if I could real quick Jon on the couple line items. On the G&A that seemed a bit lower this quarter, any special impair and do we bounce back again I assume in the fourth quarter to be higher?

Jon Grisham

Yeah, that’s exactly right. There is always some amount of seasonality if you will in G&A and it was lower than usual this quarter. I think we bounced back up to somewhere around $6 million on the quarterly basis going forward. So that's it.

Rich Moore - RBC Capital Markets

Okay. Good, thank you. And then you actually pointed that in your prepared remarks when we were looking at page 18 and we noticed that you actually have more hedges than you have variable rate debt and so you're actually more than a 100% fixed. And I'm curious what all those are I guess.

Kenneth Bernstein

We're a careful bunch of guys, right?

Rich Moore - RBC Capital Markets

Yeah, overhead, I like that.

Kenneth Bernstein

Yeah. There will be some financings going forward. So that will self correct. But back when we place those hedges which was early 2013 turns out that there is a real good time to start locking in long term rates. So I think that will work out very well for us.

Rich Moore - RBC Capital Markets

Okay. And last thing guys is the sale of the two assets out a Fund II does that get us any closer, I guess it gets closer, but does it get us anywhere near or where you might get into the promote phase of Fund II ?

Kenneth Bernstein

Yeah. So the short answer is it's a little bit early to start talking promote and counting check-ins. This certainly helps. So the way we look at it is if you look for example in terms of equity multiples, take those pending sales which we presume will close hopefully fourth quarter. And looking at previous sales in the fund gets us to an overall gross equity multiple of about 1.7. So, following that, we'll have returned almost half of the Fund II equity and at a profit. So every piece gets us closer, but by far the most meaningful piece is yet to come, which is City Point. And so that’s several years down the road in terms of ultimately monetizing that. So stay tuned but we're not going to start assuming anything at this point.

Rich Moore - RBC Capital Markets

Okay, great. Thank you guys.

Kenneth Bernstein

Thanks Rich.

Operator

(Operator Instructions). And we have Michael Bilerman from Citibank online with the question. Please go ahead.

Katy McConnell - Citigroup

Good morning. This is actually Katy McConnell on for Michael. Relative to the $22 million of fee transaction on promote incoming guidance, how does that look going into 2014?

Kenneth Bernstein

Yeah. So again I am not ready to give 2014 guidance at this point. But if you look at that $22 million, look backwards in historically it’s been fairly consistent. And keeping in mind that two-thirds of that $22 million is asset and property management fees which are pretty predictable and recurring in nature. And then the other piece which is the give or take $5 million of transactional fees certainly looking at City Point over the next year or two, presumably there’ll be quite a bit of activity there that will certainly help the transactional fee income. So, it has proven to be on a historical basis a fairly recurring number.

Katy McConnell - Citigroup

Okay, great. Thank you.

Operator

And we have Cedrik LaChance [Green Street Advisors] online with the question. Please go ahead.

Cedrik LaChance - Green Street Advisors

Thank you. Just a question in regards to how do you think about issuing equity and raising equity. So you were active earlier in the year, or you stopped those share prices went down, you are clearly interested in being active again, based on comments earlier. What makes you determine that it’s a right time to issue equity? Do you look at your NAV, do you look at earnings, what makes you decide that the certain equity price is the right price?

Jon Grisham

Yeah. The short answer Cedrik is we look at NAV and when it makes sense to issue equity, we issue equity. Looking at the pipeline or certainly is a need for capital, so we keep a close eye on the capital markets in our share price and when the time is right we will pull the trigger.

Kenneth Bernstein

And then from an earnings perspective Cedrik that what we have found is that can just be a huge mistake, when you sitting there and just looking at so called earnings accretion from issuing equity or even worse filing on debt. So we don’t play that way. And you are right and Jon pointed out, at the end of May stock prices started to really fall off, coupled with the bond market movement. We took a step back because it wasn’t clear to us whether or not the repricing in the public market was forward looking and we were going to see some real changes or as if laid out things moderated. I guess one hand, the REIT market is forward looking and respect that; on the hand, I guess you could kind of joke that the REIT market has predicted seven of the last three price corrections.

So we watch it respectfully and then when it makes sense to match fund and raise capital that the making investment accretive to NAV will do it.

Cedrik LaChance - Green Street Advisors

Okay. And how would you compare your current share price with your NAV are we above NAV at this point?

Kenneth Bernstein

There are some excellent firms that do a lot of work NAVs based on what we put out there and I am respectful of the work they do and we’ll let them and all of you do that. I think you should watch how we or any company treats their currency and so if we are saying we are trading at a discount NAV and issuing share its better be compelling and when you see as we did last quarter not issuing any stock I think you should probably look at that as well.

Cedrik LaChance - Green Street Advisors

Okay. Thank you.

Kenneth Bernstein

Sure.

Operator

And we have Josh Pitinkin from BMO Capital Markets online with the question. Please go ahead.

Josh Pitinkin - BMO Capital Markets

Hi good afternoon guys. Looking at City Point and Target and I realized it’s a model for the City but with the full line offering and allowing terminal down the street how do those two concepts comparing what do you think will complete with each other?

Kenneth Bernstein

I think going to be very complementary more important probably to them what I think is what Target thinks and we have worked with them for years on downtown Brooklyn for those of you who may recall originally we were putting a full sized Target and even then they felt that there was enough of a differentiated customer in Brooklyn, remember Brooklyn is the fourth or fifth largest city in the United States on a standalone basis and you wouldn’t go to Minneapolis and say why do they have only one target. So they felt very comfortable even full size now that you are talking about the City Target which is going to attract and address a different kind of shopper and when you look at all of the new apartments and condos that are being developed, the new hotels, the new entertainment and restaurant it’s a much different experience and will easily afford Target a great foothold with both of those stores.

Josh Pitinkin - BMO Capital Markets

Okay. Is it a more of a grocery offering at the City model?

Kenneth Bernstein

No, it’s well added, I urge you to go check out, if you are in Chicago, see the space street store really exciting very high energy it has plenty of groceries, it has plenty of everything but they added it really well and so it will afford the urban shopper a great set of choices and it’s not small in my view, still close to 90,000 square feet of selling space. So this is not a boutique but it’s real estate.

Josh Pitinkin - BMO Capital Markets

Interesting, okay. And on the asset recycling side and kind of building on retches thoughts in terms of Fund II monetization is there a mechanism for AKR the REIT to buy assets out of the funds as they monetize?

Kenneth Bernstein

No. In fact it’s complicated if we were to entertain that and it would have to be very compelling. So just keep in mind that the funds model is we the shareholders put up 20% of the equity for roughly 40% of the economics. We focus on buying turnaround assets either that are opportunistic on the purchase in terms of our high yielding investments or heavy lifting turnaround. Buy the asset, you fix them up and you sell them and sooner or later and Jon has been kind of walking you through the steps, but sooner or later we have been very successful then on monetizing and collecting our share of profits. The discipline associated with being an opportunistic buyer and an opportunistic seller is a very important skill set and one that I think, and those to the benefit of our shareholders.

Sure, it would be wonderful to cherry pick assets, it's really difficult and I'm not going to say never, because there are firms I'm sure that do it. But it better be really compelling to your institutional investors otherwise they are going to lose faith and there is just no reason to do that. Thankfully, we see plenty of the deal flow for us to buy for the core and thankfully, we see enough enthusiastic buyers for the fund that we've not had to crossover that line.

Josh Pitinkin - BMO Capital Markets

Okay. On the disposition side, you mentioned there is a more non-core you'd like to dispose of. How much of that as a percentage of the core portfolio are you thinking over the long-term?

Kenneth Bernstein

Thankfully, so prior to the financial crisis, we have sold off close to the bottom what was then half of our portfolio. So we did a lot of rooming before the financial crisis. We have and as I pointed out in the prepared remarks, the assets we've added have been consistent with our upper quartile. So in fact, since 2010, it's been 80%, in the past 24 months 75%, but the vast majority of our upper quartile, the vast majority of our second quartile of our portfolio are things that we just bought and I would be really disappointed for the acquisition team to come in and say oops those are some that we should be selling.

Our third quartile was the upper half of our portfolio prior to 2010, that’s real good. And even within our fourth quartile it is good assets there so I joked that we have this fifth quartile of four or five assets out there since I need to look at it and you’d say look Ken it’s a good asset, but long-term you need to be in Burlington Vermont or do you really need to own one or two assets in Ohio and that we could find a fifth or sixth asset and after that we're done.

Josh Pitinkin - BMO Capital Markets

Okay. So, fifth quartile?

Kenneth Bernstein

Fifth quartile think about it as five or six asset not going to move the needle one way or another it’s not going to be really dilutive to earnings, if we sale it, not going to be a use accretion to NAV if we sale it, but as it’s just ongoing discipline you’ll see us share those asset opportunistically and patiently we're no rush and John certainly doesn’t need the money to deleverage.

Josh Pitinkin - BMO Capital Markets

Okay, very good. Thank you.

Kenneth Bernstein

Sure.

Operator

And I would like now to turn the call back to Ken Bernstein.

Kenneth Bernstein

Great. Thank you everyone for joining us. We’ll speak you next quarter.

Operator

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. And you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Acadia Realty's CEO Discusses Q3 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts