Acadia Realty Trust (AKR) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentleman, and welcome to the Second Quarter 2012 Acadia Realty Trust Earnings Conference Call. [Operator Instructions] I will now turn the call over to Amy Racanello, Vice President of Capital Markets and Investments.

Good afternoon, and thank you for joining us for the second quarter 2012 Acadia Realty Trust earnings conference call. Participating in today's call will be Kenneth Bernstein, President and Chief Executive Officer; Jon Grisham, Chief Financial Officer; and Michael Nelsen, Senior Financial Principal. Before we begin, please be aware that statements made during the call that are not historical maybe 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 25, 2012, 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.

Thanks, Amy. Good afternoon. Today, we're going to review our second quarter operating results and update you on our recent progress of our various initiatives. As we've stated on previous calls, our focus for this year has been on creating value through 2 broad components of our business. First is within our core portfolio, where the key drivers are in the short-term, the accretive re-anchoring and lease-up projects at 3 of our existing shopping centers. And then coupling this with the acquisition of high-quality assets as a part of our asset recycling and core acquisition initiative. Then the second component is through our external growth platform, where we've been actively focused first on executing new opportunistic and value-add acquisition. Secondly is continuing to develop, lease-up, stabilize and monetize our existing investments, and then finally the launching of our next fund, Fund IV. So I'll begin today's discussion with our core portfolio activity. And then I'll follow it up by an update on our funds activity. Then Jon will conclude with a more detailed review of our second quarter earnings and our operating metrics. Now first of all with respect to our core portfolio operating fundamentals. Our second quarter results exceeded our expectations, along with steady progress on our 3 re-anchorings, which help drive our core occupancy to 92.6%. And the balance of the portfolio was also performing above our expectations. This keeps us on track to finish the year with an occupancy in excess of our prior goal of 94%. And furthermore, if you look at our same-store NOI growth last quarter of 4.9% and strip out the contribution from the 3 re-anchorings. Same-store NOI growth for the core portfolio was still a strong 3.8%. In terms of the 3 re-anchoring, Bloomfield Hills is now complete. With respect to the 2 remaining A&P re-anchoring projects, we're on track for a fourth quarter opening of LA Fitness at our Branch Shopping Center in Smithtown, Long Island. We're also making significant progress at our Crossroads Shopping Center in Westchester, New York. As you may recall, we bought this lease back from A&P, when they filed bankruptcy. The rent on the lease was about half of market rent. And as we stated during our last call, we were considering 2 options for the re-anchoring. The first and more straightforward re-leasing opportunity and then the second included the expansion of the existing space to add somewhat more significant anchor to the center. We decided to pursue the expansion opportunity and our team has made significant progress towards signing this anchor tenant. And we'll keep you posted as to that progress. And while this shift will push out, is replacement rent commencement to the middle of 2013 and suppose to yearend. We believe that this direction will be a more long-term worthwhile option. As we discussed on prior calls, once completed, the re-anchoring will have added in aggregate and incremental 3.5% to 4% to our occupancy, and $3.5 million to $4 million to our NOI, and approximately 8% to our earnings base. Turning to other anchor tenants in our portfolio. Given the recent announcements by Supervalu and its recent stock performance, we have received increase about the status of our Shaw's anchored locations. While this is probably not the appropriate venue to discuss different strategic alternative that Supervalu may pursue to resolve its issues, let me give you pre-overview of our current leases. We have 3 Shaw's leases in our core portfolio and one in a fund investment. Our rent ranges from approximately $10 a foot to the upper-teens with the higher rents being those leases with longer-lease terms. With respect to our core portfolio and our Crescent Shopping Center in Brockton, Massachusetts, shows recently invested in the space by converting the stores to one of their value formats and reports that sales have improved. Our Gateway Center in Burlington, Vermont appears to be a relatively strong performer and has significant lease term. And the finally Walnut Hill Center in Woonsocket, Rhode Island, we expect that we will pursue a disposition at some point over the next year of this asset, given that we have a little bit more than $23 million of non-recourse debt on this property. Assuming a disposition at any amount in excess of the debt, this should not result in a negative dilution to either our earnings or net asset value. Then with respect to our Fund III, Shaw's at our White City Center in Worcester, Massachusetts, we acquired the property relatively recently with the view that Shaw's would be replaced with a stronger anchor. To the extent that this happens sooner rather than later and that would certainly be welcome by us. Furthermore, while we will actively protect and maximize the value of our existing investments, we also suspect that there will be future opportunities arising from this volatility, as was the case with our 2 recent A&P acquisitions in Maryland, where we successfully converted them to ShopRite. While we never looked forward to the financial deterioration of any of our tenants as they can in certain cases create opportunities. As we profitably navigated in the past through Caldor and Grand Union, Bradley's, Ames, K-Mart, more recently A&P as well as through our successful participation in both Mervyns and Albertson's. I suspect well do fine with respect to our existing asset and we'll probably also find to future opportunities as well, along with the core growth contributions from the 3 profitable re-anchoring. The second key driver of our core growth is from our asset recycling in 4 acquisition initiative, most significantly through the addition of select high-quality assets. During the second quarter we closed 3 transactions. First on the corner of the Rush and Walton Street, where we acquired Lululemon's urban flagship store in the Gold Coast of Chicago; then in Washington, D.C.; a property on Rhode Island Avenue that's inside a district adjacent to a D.C. metro transit stop that's anchored by a strong T.J. Maxx and adjacent to a giant supermarket. And finally, 28 Jericho Turnpike in Westbury, Long Island. This is leased to a 96,000 square foot Kohl's. The property is situated between Jericho Turnpike and the Long Island Expressway with strong visibility from both roads ways. It's a solid high barrier to entry location with long-term upside. Subsequent to quarter-end we added another street retail property, this one in the heart of Soho in New York. The property is occupied by Paper Source. It's on Spring Street just off the Broadway. So year-to-date we added just over $122 million of acquisitions to our core portfolio. And this keeps us on track with respect to our core acquisition goals of adding between $100 million and $200 million a year of high-quality assets to our core. With respect to the status of our previously announced core acquisition those being in Washington, D.C., Boston, New York and Chicago. We've now closed on all, but one 9-property portfolio in Chicago that's part of secured type pool that were hopefully in the final stages of getting approval for the assumption of his debt is length approval process. And has created some obstacles that we're confident we can overcome and head towards a closing in a not distant future. In the event we're not successful, we'll find other good usage for approximately $16 million of equity that was allocated to these buildings and that should not be a material step back to our overall business. That being said, we expect to successfully proceed with this transaction to close. Turning now to our one funds platform. On the acquisition front, during the second quarter we closed on our previously announced Lincoln Park Centre for $31.5 million. That will be the final new acquisition in Fund III, where we will have utilized approximately 95% of the Fund III equity dollars going forward. Our new fund investments will be executed through our recently launched Fund IV. At the end of the second quarter, we commenced Fund IV, as we previously said it will be similar in size and terms to Fund III. To date we've closed on approximately 90% of the anticipated $500 million to $525 million fund. And the remaining balance appears to be circled and heading towards closing shortly. Acadia will invest between $100 million and $125 million of equity in this fund. And overall, this gives us approximately $1.5 billion of buying power. Given the uncertainties and volatility in the market, we think it could be a very opportunistic time to have this patient and dry capital. In closing this fund over the past few month it's become abundantly clear to us that discretionary fund dollars have become much more selective and scarce. Thus it's that much more gratifying that both existing and new investors have chosen to invest with us in Fund IV. Given that we don't use outside advisors or consultants to assist in this fund rate. The successful closing of a fund requires a significant amount of hard work and perseverance by many members of our team. So I'd like to thank and congratulate our team for the excellent job they did in completing this process as smoothly and as professionally as they did. And more specifically, I'd like to thank and acknowledge Amy Racanello, for her tremendous contribution to getting this fund over the finish-line. Amy is one of the many young and rising stars in our company. It's being a privilege and a pleasure to work with her, and watch her grow throughout this process. With respect to our existing fund investments, many of our redevelopment projects are now approaching stabilization and the demand for high-quality stabilized asset is very strong. In many instances it's as strong as I've ever seen it. Accordingly, we now have the opportunity to proceed towards modernization for many of our investments. In Fund I, during the second quarter we completed the sale of one of the last remaining assets in that fund, our Terry Town Shopping Center. This resulted in approximately 20 IRR in equity and more than a doubling of our equity investments. Fund II stabilized assets include Fordham Road, Canarsie Plaza, Pelham Manor, Liberty Shopping Center, and we're in a position to consider various modernization strategy for those assets. Then in Fund III, in the second quarter we sold White Oak Shopping Center. As you may recall, we purchased this asset just under 2 years ago for approximately an 8.5 going in cap rate, due in a large part to the fact that it was leased to A&P and somewhat irrespective of the quality of the underlying real estate. And then subsequently A&P was replaced with ShopRite and we sold that property at over a 200 basis point lower cap rate. Our redevelopment in a Westport, Connecticut is fully stabilized, and now that under contract for sale. Our self storage portfolio, last quarter occupancy grew to just over 91.5%, up from 88% occupied. So we'll keep you posted as we progress on all fronts with respect to Fund III. Along with the majority of our portfolio that's approaching stabilization. We also have several investments in our development and redevelopment pipeline, primarily here in New York, and they are now gaining momentum as well. We can discuss this pipeline in more detail on later call, but it's worth nothing that in the second quarter we announced our signing of Century 21 Department Stores as a key anchor of our CityPoint project. For those of you outside New York and perhaps not as familiar with Century 21, they are one of the most exciting value focused fashion department store's around will occupied 125,000 square feet on the third and fourth levels. As well as a significant portion of Phase I of CityPoint. In the second quarter we made significant progress on other points of CityPoint and we can discuss those at a later point as well. So in conclusion, in the second quarter we made steady progress on achieving the 2012 goals that we set forth earlier this year. Within our core portfolio, we continue to push-forward both our re-anchoring project as well as new core acquisition. And combining this growth with our opportunistic and value-add investments made through our fund platform enables us to create value through a broad range of investment activities. Finally, with the successful launch of our Fund IV, we continue to be positioned to take advantage of a wide array of opportunities as they arise over the next few years. With that I'd like to thanks the team for their hard work in the last quarter. And I'll turn the call over to Jon.

Good afternoon. Both earnings and portfolio operating metrics were at the higher end of expectations in the second quarter. As reported, FFO was $0.27. Four notable positives for the quarter were, one, promote income from the Fund I sale of the Terry Town Shopping Center. The sale generated $4 million of net sales proceeds, which were distributed generating in turn $600,000 of promote income for Acadia. Two, income from Fund II's RCP investment in Albertson's. The fund received a $2.3 million distribution, of which Acadia's share was $275,000 net of taxes. Third, re-anchoring activities, and I'll discuss this further in a minute, during the quarter Bloomfield contributed $250,000 of NOI. And then fourth, following the mid-May launch of Fund IV, we earned $500,000 in asset management fees from the fund during the quarter. And then on the negative side, the quarter also included acquisition costs of $500,000. Turning to our core portfolio performance. In the second quarter we turned the corner in terms of the same-store NOI drag from our 3 key re-anchoring. Same-store NOI for the quarter was 4.9% with the re-anchoring specifically Bloomfield Hills, providing a net contribution of about 1% to that number. Excluding the re-anchoring activities the balance of the core portfolio was up 3.8% for the quarter and year-to-date is up 3%. Based on our second quarter performance, we are currently tracking the high-end of our full year guidance for same-store NOI growth, which is 2% to 3%. June 30 occupancy was 92.6%, which is up 230 basis points over first quarter. And this is primarily due to Bloomfield Hills, which accounted for a 170 basis point to that increase. Our portfolio is currently 94.6% leased, which is above our original 2012 yearend target of 94%. 50 basis points of this occupancy is attributable to our 2012 acquisitions, which are primarily 100% occupied street and urban assets. But notably, this does not include the re-anchoring of Crossroads, which when leased will add another 50 basis point to the occupancy. Small shop occupancy is up 450 basis points since the beginning of the year. It's 86.2% today versus 81.7% at beginning of the year. The majority of this increase is from the same-store performance with about half coming from the Bloomfield Hills retenanting. As Ken noted, we continue to make progress in our re-anchorings. And as previously discussed, once fully online, these 3 anchorings will contribute an incremental $3.5 million to $4 million annually, as follows: one, Bloomfield Hills, which is now fully online with Dick's Sporting Goods, Ulta and Five Below open and operating, will contribute $1.4 million of incremental NOI on an annual basis. A&P re-anchoring at the Branch Plaza represents $1.6 million of additional NOI, for which the majority will come online during the fourth quarter of this year. And then the other A&P re-anchoring at the Crossroads, which represents about $750,000 of annual NOI on a pro-rata basis is expected to commence in the middle of 2013. Previously, we expected about $1.5 million of this total $3.5 million to $4 million of incremental NOI to hit in 2012 and then the balanced to occur in 2013. Due primarily now to the timing of the Crossroads re-anchoring, we currently expect about $1 million to hit in 2012 with the other $2.5 million to $3 million hitting in 2013. Ken discussed our Supervalu exposure. Another tenant, which we discussed last quarter was the avenue for which the parent company, United Retail Group, filed Chapter 11 in February of this year. We have 4 locations in the core totaling 25,000 square feet in an aggregate $600,000 of rents. We currently anticipate that they close 2 of these locations before yearend, representing about half of these rents or $300,000. Rent at these locations are at market and we expect little if any dilution on a long-term basis as a result of retenanting in these spaces. Looking at our earnings guidance for the balance of 2012. Our core portfolio key drivers, which are the re-anchorings and acquisitions are essentially on track. To date we've closed on $120 million of core acquisitions. We've completed the Bloomfield Hills re-anchoring. LA Fitness at the Branch Plaza is scheduled to open in the fourth quarter. And then at the Crossroads, the replacement is now a mid-2013 opening, whereas we had originally projected that it would open late fourth quarter, given the fact that it was such a late year opening, it doesn't have a significant earnings impact on 2012. Remaining projected transactional fee income relates in large part to our redevelopment activities at CityPoint. And then in our funds, we met our target for our second quarter launch of Fund IV. As such asset management fees were $500,000 for the quarter. And then on a go-forward basis there will be $1.5 million per quarter going forward. So as we have previously noted, 2012 is a transitional year for earnings. And importantly, we have secured or in the process of finalizing most of the major variables. And as a result, we're still target for achieving $0.30 on a quarterly basis. Although with the anticipated timing of the Crossroads re-anchoring pushed out to mid-2013, we're likely a penny or so shy of that target until we complete that last re-anchoring. Once the flat piece is in place, we'll have a high quality recurring quarterly earnings base, which will provide a solid platform to build off of going forward. Lastly, but certainly not least, we continue to run a disciplined balance sheet. We're maintaining appropriate leverage levels and matched funding investment activity with new equity. Our leverage level is conservative and we continue to drive down our cost of debt. Our current fixed charge coverage ratio is 3.4x. Our net debt-to-EBITDA is 5.3x. And I think someone may have mentioned on the last call that these metrics had fluctuated some and certainly they will continue to do so it to some degree. But despite this quarter-to-quarter minor variation, we will maintain our metrics within those target ranges. But obviously, we'll continually fine tuning and tweaking our capital structure to maximize long-term stability and minimize cost. Today, we've raised $65 million of equity under our ATM, which reviews towards the $80 million of equity requirements for our 2012 acquisitions. Overall, leverage on these acquisitions has been lower than our existing portfolio. So we do have some current capacity to employ a little more leverage. Historically, we've utilized secured debt, which has provided us with a low cost of capital. We're seeing spreads for secured debt in the 175 basis point to 225 basis point range over swaps, and we've capitalized in the lower-end of this range for our recent financings. As for the unsecured debt market, we're seeing spreads continue to tighten somewhere around a 150 basis points of the LIBOR. Obviously, this is an attractive spread in all-in-rate and we see this as a viable financing option in the future. We're also constantly monitoring pricing and other types of equity, including preferred equity and we'll use the appropriate capital based on pricing and ability match fund. Lastly, the launching of Fund IV will provide up to $1.5 billion of purchasing power over the next 3 years to fund growth in our opportunity fund business. With that, we'll be happy to take any questions. Operator, please open the lines up for Q&A.

[Operator Instructions] And your first question will comes from the line of Quentin Velleley.

But just in terms of Fund IV, could you maybe talk a little bit more about the types of acquisitions you're most likely to go for? Where do you think the most opportunities are going to come from? Is it going to be distressed grocery retailers or more straight retail or urban redevelopment? Maybe if you could just elaborate a little bit on that?

In terms of Fund IV, remember this is going to be over a 3-year period and our ability to see around corners is non-existent. So let's talk about what we're seeing today. Right now, there continues to be in our view a continued separation between the desire for really high-quality, high barrier to entry locations and more secondary. Our efforts to date, and I would expect it to continue until something shifts, is going to be buying assets that are either broken at the balance sheet level or broken at the real estate level, but in kind of locations that our tenants seem to be holding in high demand. So that's consistently with whether it's Lincoln Park in Chicago or Lincoln Road in South Beach on the street level or some of the A&Ps we acquired. So it could fall into any of those categories. And in general what we're thinking about our distressed balance sheet and distressed debt, distressed retailers, A&P or we just talk briefly about Shaw's, and urban redevelopments, where we can take our national tenants and help them find a home here in some of these dense locations. I would expect that to be the case with the following caveats. There are a whole bunch or cross currents going on in the macro economy. And then in terms of the commercial real-estate industry, there is still a lot of debt, over a trillion dollars of it, where some form of re-equitization needs to occur at some point. At some point we get past kicking the can down the road and lenders will demand and receive some form of re-equitization. And we expect that these dollars will also be very effective into that space. Quentin, were you able to hear me or is the static still there?

Just secondly, in terms of the transaction fee income, net of taxes, I think guidance is $5 million to $6.5 million. I think you've done a little bit under half of that in the first half for the year. Could you just talk a little bit about phase you likely to see in the second half?

Sure, and that is correct. We're little bit under half midpoint for the year. For the second half of the year, we expect additional transactional fee income primarily from the CityPoint redevelopment, mostly construction fees. So that should drive that second half transactional fee number and get us to that guidance range.

Your next question will come from the line of Todd Thomas.

First question, I was just wondering if you could elaborate on guidance a bit. I think I heard that about $500,000 of income from Crossroads and the re-anchoring have pushed out a bit to 2013. I was just wondering what's driving the other $1 million decrease in core portfolio income in the underlying guidance.

So it's a combination of several items but certainly the Crossroads re-anchoring is one piece of it. Probably the most significant piece is acquisition cost. So today we had about $1 million of acquisition cost and that is more than we originally forecasted in that lined item. As an aside the accounting treatment of acquisition costs is a P&L expense, I think is ridiculous given the fact that here we have these positive accretive events and it creates this negative activity in the P&L in the current year. So my opinion aside, in the past he didn't check with me when they changed that rule. That's what's driving most of that decrease in terms of the debt line item.

And then, how about the G&A savings, where are those coming from?

Yes, broad based. It's across several categories. So we're from original guidance of $24 million down to $23 million, and again it's across a lot of different line items within the G&A category. It's really no one's specific action or item.

Just a question on the dispositions, can you mention that the occupancy and the Storage Post Portfolio, it's over 91% and it looks like it's about $800,000 to $900,000 or so from reaching the stabilized NOI projection. I was just wondering if you could talk a little bit more about where you are in the process with marketing or monetizing that portfolio.

The focus to-date has been primarily by the management team doing an excellent job of driving occupancy and now NOI is following nicely. So we have not announced any formal marketing, stay tuned. But like all our fund investments, they have a finite life. And when we think it's the appropriate time to monetize, we'll do that. So if we're willing to sell assets like Main Street in Westport Connecticut which is obviously a property we're proud of having successfully redeveloped and very essential to what we're doing, certainly the sale of self-storage would follow.

Just one quick last question for Jon, you mentioned preferred equity as a potential funding resource. Where do you think you could price preferred today?

We're obviously not investment-graded, so it's probably a higher than some of the headlines you've seen on other transactions. It's probably somewhere or a number that starts with the 7 handle.

Your next question will comes from the line of James Sullivan.

Couple of question guys, and I wondering if you could talk a little bit more about the core acquisitions during the quarter and specifically Long Island and Soho, and my questions, my curiosity is kind of number one, is near-term lease expiration here. Number two, where would you estimate rent is relative to current market, and thirdly, redeveloping opportunities especially for the Long Island calls?

So the rents are probably pretty close to market in Soho but the rents keep growing in Soho quickly enough that by the end of this call that may change. And there is decent lease term in Soho. About 7 year left in with respect to Kohl's. And our view on the Kohl's was very strong performing Kohl's. We're pleased with are going in un-levered yields. We'll be very pleased with our leverage yield and if in 7 years we can get it back and add value at that point, great. And if not, we think it's a great core holding and some day, sooner or later we tend to get back most of our boxes and then get to do something with it.

And would you characterize the parking at that side is in excess of core or is it pretty much inline?

Pretty much in line and Long Island is a tough and dense market that requires certain amount of creativity. And we're pretty good at working through those issues. But again, Jim, this is 7 years from now. So exactly how we would, if we ever get the opportunity to do something with that it's going to be several years out.

And can you address the prospects for any additional distributions that might come out of Albertson's?

No, we cannot, other than it's been a great investment and we still think that there is more room there.

I mean, as obviously we're over 3x cumulative to date. But they are still own a substantial amount of assets. And so there is potential there for future monetization, obviously.

And then a final question from me. Ken, in your prepared comments, you talked about discretionary allocation as being scarce in private equity. And I just wonder, if you could talk a little bit more about how things have changed, number one. And number two, historically, I believe you guys had a pretty good level of reinvestment with your investors. And I'm wondering if you can address whether that's changed and I guess, finally, number three is this a short-term issue? How do you see this playing out? Do you think it will be back in the conditions we were at a few years ago. Is that going to take 2 years, 3 years or is it just impossible to give an answer on that.

Let me try to talk about a bunch of different things. What we have seen in general, in our primarily endowment foundation world is that many of the endowments foundations found themselves being slightly over invested, and perhaps getting less capital back from prior investments, in real estate and in some of the other areas, private equity, et cetera. And so in general, they are investing fewer incremental dollars than they were perhaps before the financial crisis. Fortunately for us, most re-upped with us, and if there was smaller amount, that's fine, because it gave us an opportunity to meet some new capital, substantial amount of it not being our traditional endowment foundation group, but one entity overseas as well as some pension funds. And overall, I think that the discretionary business will certainly go through some shift. It could be a couple of years. But there will always be a demand for good managers, who can align their interest with their stakeholders, who are vertically integrated or have some of their expertise that these kind of institutional investors want to invest with. That being said, I do think for the foreseeable future, what we're hearing from our investors, is they're being much more selective about who they invest with. And if that could be cyclical that may just be a couple of years or that may continue for a while, I don't know. The other interesting thing and you're seeing these trends are some investors are choosing to invest other ways. So some are saying we want to own real estate directly. I think that's cyclical. I think that is that, oh, the grass is always greener on the other side you try that for a while and you realized that doesn't appeal as much. Some are trying to go into separate accounts. I think there is pros and cons about that. And finally, a lot of capital is saying what about REITs? Is that providing us a similar exposure? Is it more of a core or core plus as opposed to value add? So let's watch this over the next several years. And see how it plays out. We're relatively diagnostic, because we can attract capital both ways. And we think that there will be, thankfully, more than enough capital for Acadia Realty Trust, whether on the public side or the private. But the overall shift is something that it's early, it's worth noting. We think it could result in more interesting deal flow at different points in the cycles for us as there were maybe fewer discretionary dollars, but too early to tell.

Then final question on this point, to what extent is the consideration of alternative investments part and parcel, of just trying to reduce fees and generate a higher after fee return and how much pressure are you seeing to reduce your fees?

We didn't. They watched them very closely. I think we're fair about it. It's not that it doesn't get carefully scrutinized, but it's really about how much allocation does a given investor wants in real estate, I believe. And then what's the best avenue for getting it. I should be careful hard places that are what we think is a fair hurdle return of 6%. We're able to keep that intact and there have been a bunch of questions of whether or not that was the appropriate level. And I think our investors understood that for the kind of deals we do that aligns our interest very closely with them. And we were able to keep our fee substantially intact but that's also because we're not a fee-focused platform, we're out there to create the kind of profits that we were just talking about the Albertson's or the Mervyns or some of our recent sale. As long as we stay focus on investing profitably that backend can be a important addition for all our stake holders, both are shareholders and our LPs.

Your next question will comes from the line of Mike Mueller.

Couple of questions, but just Jon, can you run over again because I miss some of those with the static. When you talked about the Crossroads re-anchoring, how much was coming on line mid-2013, was that $750 million?

Yes. So to summarize again, that $3.5 million to $4 million related to the re-anchorings, about $1.4 million is Bloomfield, $1.6 million is the A&P re-anchoring at Branch and then the $750 million is the A&P re-anchoring at Crossroads.

And then shifting back to acquisitions for a second, I think you've closed about a $120 million roughly this year. Can you talk about what the expectation is because I think the stated goal is $100 million to $200 million year? What do you think you'll see on the core side in back half of the year? And on top of that anticipated capital outlay for the funds and how you think about financing and with equity considering your comments about room to lever up a little bit?

So our expectation is consistent with that target of the $100 million to $200 million on in annual basis and we're seeing good deal flow and there is activity in our pipeline that we think supports that expectation. So we certainly expect more or the same. In terms of leverage, obviously, on overall basis we are targeting to maintaining give or take 30% debt to total market cap. We do have a little bit of room in terms of current ability to leverage up, not locked by the way but a little bit. And so what we'll do is we'll look at it probably on deals specific basis and pick the right assets and place the appropriate amount of leverage there and keep our cost as low as possible. So that's our expectation for the core. In terms of the funds, we are targeting as we said $200 million to $300 million on an annual basis. That will be lumpy. But again we are seeing enough opportunities that we have every reason to expect that certainly over any extended period of time, we will acquire at that level.

And going back to the core for a second just to clarify, the $120 million that you did that you close this year, some of that was stuff that you announced last year. Are you considering the $120 million as part of this $100 million to $200 million this year, when you think of calendar year 2012 or is that kind of separate.

Part of it is from the pipeline from last year.

So how much of that is 2012 that when you think of this $100 million to $200 million goal?

So of the $120 million, about a little over half of it is incremental 2012 acquisitions, over little bit less than half being 2011 pipeline.

Your next question will comes from the line of Rich Moore.

Congratulations, first of all, to you and to Amy on completing Fund IV and as I look at it, it looks like you kind of touched on this but it looks like the structure of Fund IV is essentially identical to Fund III, isn't it?

Yes, it is. We probably will invest and we're finishing up the final closings for bunch of reasons. I want to make sure that Acadia is largest investor in the fund and we may increase our investments from $100 million which was Fund III to maybe up to $125 million in the Fund IV but other than that substantially the same.

So does that increase the size of the fund, Ken, or is that just will take a bigger to $500 million to $550 million?

Yes, it does dollars-to-dollars, Rich. So expect the fund to settle in between $500 million to $550 million. As I mention we had one existing investor who is finishing up there process assuming that occurs and assuming we go $125 million that will take to about $540 million and I think then we're done.

And then the percentage of new investors in this, Ken, the amount of money that is coming from new sources as a percentage, I mean what do you think?

It's about half-and-half based on dollars. So most of our existing LPs re-up but as I have mentioned at slightly less dollars and that then enabled us to bring in some new investors.

And then on the recoveries, the CAM recoveries that you guys had a big jump, and I'm curious and I don't expect that to necessarily continue but maybe you could address, what's going on there and what we should expect for the rest of the year?

Historically, our recovery percentage is between 80% and 85%. Certainly as these re-anchorings come online, you will see that number go up 3%, 4%, 5%. But for the current quarter there is some one-time events and other items that drove that up artificially. So that's not a recurring number that anybody should bank on rather currently stick with the 80% to 85% recovery rate.

Your next question will comes from the line of Cedrik Lachance.

Just thinking about leverage in Fund IV, are you talking about $1.5 billion of buying power. Does it mean you intend to lever asset about 65% or is a question of potentially recycling some capital within the fund?

Yes, that's the right leverage level. Historically, we have used about 2-to-1 leverage. And I have no reason to think it will be materially different if the markets are not attractive for 65% leverage, and if we end up using 50%, so be it. But right now that seems to be where the markets are and that's historically, the amount of leverage we've used on these fund investments.

Why do you think that's the right level of leverage in the fund environment, when you guys use about 30% on balance sheet. Why did this discrepancy between the 2?

Within finite life funds that utilized non-recourse asset level debt for properties that you are buying fixing up and then selling. The tolerance for leverage levels at that level, seems to work a lot better than within the public model where there is arguably more moving pieces and the lower leverage level to keep an operating company and its various obligations going, just seems to lean more towards the leverage levels that we operate on. There is a much lengthier conversation about what's the right level of risk and are you exposing your private LP stakeholders to undo risk, that's probably better conversation for another time. But what we find is and what we've seen is on the private side, we tend to use less leverage than most of the other private fund investors that we work with, compete with, et cetera, and we think that that's appropriate. And then similarly, on the public side as you know we cannot do over leverage. So while that does look like a decent discrepancy in the 2, both seems to work and as you stress test our assets through the last global financial crisis, the last 100-year flood, if you will you see we did not run into the stress levels either at the public company side or on the private. When we continue to watch that, make sure that we don't put our stakeholders in undue risk in either case and so far that balances work

And then just few question in terms of asset dispositions from some of the funds, are some of the properties potential candidates for your core portfolio to acquire or would you prefer to keep the separation between selling from the funds and buying on the other hand from the balance sheet side?

Yes. We will keep it separate. It is one of the realities of being a good partner and good fiduciary. We can always articulate or think about scenario where it may makes sense but for the most part even though, many of the assets, I was talking about Westport Connecticut but Canarsie Brooklyn, there is host of assets that you'll see sold to third parties because it's just cleaner and simpler. And thankfully, there is enough real estate for us to add to our core that we can run this business model very effectively without you worrying that we as a shareholder are overpaying or our LPs worrying that we as a general partner are trying to take advantage of them. We keep it clean and simple and so far so good.

Your next question will comes from the line of Paul Adornato.

Just a follow-up with respect to the fund dispositions, Ken, in the past you've been very patient about disposing of assets, but at the same time today you mentioned that you feel that there is good value creation there and a good appetite for core product out in the marketplace. So I was wondering if you could help us think about the pace of dispositions in 2013 and beyond with respect to remote income and transaction income.

You're right, we were very patient in 2009, 2010, 2011 were not good years to sell asset especially as they weren't too stabilized. And now we're at a point, where assets that we stabilized, we think is the responsible thing and the profitable thing to then start monetizing them. So I think you will see and I'll let you do the math, but we've articulated a big chunk of fund, too, that now heading towards stabilization. And I think you should expect most of that borrowing any unforeseen changes, so that most of that gets monetize over the next 12 to 24 months. Fund III, those assets that we stabilized we'll also consider. So I don't think we're going to give guidance today as to what that pricing will be. Let's see what the market tells us. And then we can give you a better sense of when we may achieve, promote and things like that. But we are pleased with the pricing. I'm very pleased with the job that teams has done in stabilizing those assets. So that even top of the market transaction was stabilizing at as NOIs, and being able to sell at profitable CAM rates. So we feel pretty good about that.

The other factors related to promote, Paul, is that until we have distributed out all the accumulated preferred returned and returned all capital, the promote does not kick in. So because of that typically promote doesn't happen until, fairly well down the road in terms of fund monetization, we will certainly not going to see in the early stages of selling that fund assets.

And just as add-on, could you comment on what you're seeing in terms of cap rates in the market for core product? Any movement over the last, let's say, 6 months or so?

Yes. Cap rates with those markets that are considered globally core, continue to compress as borrowing costs have continued to compress. So whether you want to look at it relative to the 10-year treasury or BBBs, et cetera. As those rates have come down for high-quality assets, cap rates has probably compressed over the past 6 months, 25 basis points in some instances, more or that select group of properties that the market is very bullish on rental growth, on top of that you're seeing cap rates dip below 5 for bunch of trades. We've seen some recent trades on Lincoln Road in South Beach Miami, which has a lot of good strong tenant interest. We're seeing bunch of interesting deals in Brooklyn. So core assets that institutional capital view as great long-term hold, cap rates will continue to stay low as for as long as we see a 10-year treasury at 1.5.

Your next question is a follow-up from the line of Craig Schmidt.

I just wondered, now that you've landed Century 21 as part of the anchor for the CityPoint complex, what are your plans for continued pre-leasing of the reminder of that the retail portion of that project?

The Century 21, Craig, is going to be on the third and fourth levels. And we are finalizing at least for a anchor tenant who will be on the second level. Is that then leaves the street retail and bringing in a concourse tenant and hopefully will get about half of that done over the next year with the balance of the street retail will probably wait until we open in 2014, 2015. Fashion retailers are coming to Bolton Street aggressively, H&M announced their opening, Express announced their opening, Aeropostale is there. We're seeing lifestyle tenants ranging from Shake Shack to wide variety of other restaurant expressing a high level of interest. So I would expect that trend to continue and to be observed by CityPoint speakers will really at the heart of the action.

And then on Crossroad, the last call you were saying when you were considering the new tenant for the replacement for A&P, there may be an expansion to that space as well, is that still the case?

We are assumingly, finalize a lease with this tenant. We will be expanding that box and we think that not only is it a benefit to expand it but that this will be very good co-tenant for that center and will assist in stabilizing the property in terms of the balance of the space.

Your next question is the follow-up from the line of James Sullivan.

One quick question, Ken, in the description of the fee structure for the funds, in going from Fund III to Fund IV, you went back to the your terminology of a priority distribution fee equal to 1.5% versus an asset management fee. And I'm wondering, if you could just tell us what in-substance is the difference between the 2?

There is no difference in substance economically, it's the same thing.

Your next question is a follow-up from the line of Todd Thomas.

Paul, I missed it but just quickly with regard to the ATM, I was just wondering, how much equity you anticipate selling under that program throughout the balance of the year? And then, maybe on a go-forward basis, I guess, should we expect that to be upsize?

And so we have under our current ATM which was $75 million, we have sold $65 million, so we have $10 million left on that. On a go-forward basis, we'll consider another ATM program. This one has worked very well for us. So stay tuned and we'll see.

In general Todd, while, we have multiple choices for capital. And Jon mentioned maybe we used a little bit more debt, but in fact our leverage levels will remain where they always historically. We have sale proceeds from asset recycling. We have proceeds from the fund. And when you cut through all of it though, assuming that those things remains neutral every $100 million of core acquisitions we do expect about $60 million of equity and $40 million of debt plus or minus. And the ATM in that case probably the most responsible way to do it.

And then just one last quick question, for Ken, with regard to the Fund IV and Acadia's ownership interest in the funding 20% or 25%, what sort of the deciding factor there between 20% or 25%?

There is a bunch of different reasons that, I want to make sure we have a sizeable stake. In general, we put a lot of time and energy into the fund and so I want make sure our core investments is sizeable enough that it's meaningful. And whether the exact dollar amounts are going to be based on just getting the fund to the right size and if some of our existing investors needed a little more space then we could take it down a bit from $125 million, but I would assume it goes to $125 because that's the size we'd like it to be.

And there are no further questions in the queue. That does conclude today's question-and-answer session. I would now like to turn the call back over for closing comments.

Thank you. I apologize for this static. If a key theme in Acadia is to expect the unexpected, we're certainly here now. What we will make sure is that we get the transcripts out as quickly as possible. And we'll make sure the transcripts are static free. It's painful enough to have to listen to Jon and I talk normally, so our apologies for the static on top of it. And hopefully everyone enjoys the balance of their summer.

Thank you all for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.