Welcome to the Acadia Realty Trust Fourth quarter 2015 Earnings Conference Call. I would now like to introduce your host for today's program, Samantha Gitlitz from Acadia Realty Trust. Please go ahead.

Good afternoon and thank you for joining us for the fourth quarter 2015 Acadia Realty Trust earnings conference call. My name is Samantha Gitlitz and I am the Brand Communications Specialist in our marketing department. I was one of Acadia's summer associates back in 2012 and have been with the Company since then handling our new branding, marketing and social media strategies. 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, February 10, 2016 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. President and Chief Executive Officer, Ken Bernstein will kick off today's management remarks with a discussion of the Company's core portfolio, followed by Amy Racanello, Senior Vice President of Capital Markets and Investments, who will discuss the Company's fund platform. Then Chief Financial Officer, Jon Grisham will conclude today's prepared remarks with a review of the Company's balance sheet, as well as its earnings and operating results and guidance. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue and we will answer as time permits. At this time, it is my pleasure to introduce Ken.

Thanks, Sam, you did a great job. Welcome, good afternoon, 2015 was a year of productivity and profitability for Acadia, both in our core as well as our fund platform and we saw it in the operational performance at our property levels, as well as with respect to our investment activity. As importantly, especially in light of the increasing turmoil in the financial markets, when we look at the strength of our portfolio, the strength of our balance sheet, the performance of our funds to date, as well as the dry powder embedded into our fund platform going forward, not only was 2015 a good year, but we feel we're very well positioned as we move into 2016. So I'll spend a few minutes discussing our portfolio's operating fundamentals, then discuss transactional look activity and then I'll turn over the call to Amy and then Jon. In terms of operating fundamentals, over the past few months, there's been growing market volatility and concerns have increased that a global economic slowdown could impact the U.S. economy. Retailers as well as retail real estate has certainly captured their fair share of headlines. These headline concerns range from cyclical concerns regarding the economy, a strengthening dollar, a mild winter, to more longer term or secular concerns about declining retailer demand for bricks and mortar driven by either increases in online shopping or pressure from the continued pruning of less productive stores by some retailers. While some of these concerns may be well founded, others, in our view, are clearly overblown. As these concerns relate specifically to our core portfolio, we feel we're very well positioned. We've assembled a differentiated and well-located portfolio that's positioned to both hold up well in the event of economic softness, as well as benefit from shifts in how…

Thanks, Ken. Today, I'll review the steady and important progress that we continue to make our fund platforms buy, fix, sell, mandate. First, as we previously discussed, one of the many benefits of the fund model is that it rewards the opportunistic sale of assets. Given favorable market conditions during 2015 and year-to-date 2016, we completed $435 million of profitable dispositions across our funds platform. About two-thirds of this disposition volume came from Fund III and the sale of those assets generated a blended 39% internal rate of return and a 2.6 multiple on Fund III's aggregate equity investment. Now, keep in mind that from Acadia's perspective, the solid returns that we generate on our equity co-investment are then further enhanced by our 20% promote. So in this case, Acadia's blended return on the Fund III asset sales increases to an approximate 50% internal rate of return and 3.5 multiple on its co-invested equity. Most recently, Fund III completed the recapitalization of Cortlandt Town Center which is a 640,000-square-foot power center in Westchester County, New York. You may recall that Fund III opportunistically acquired this property in early 2009 for $78 million. At the time, the property was 84% occupied due to retailer bankruptcies. But since then, we leased up property to 97% and we also acquired a development site across the street, where we're planning to build a new 150,000-square-foot shopping center. Given that we stabilized the larger asset, it was responsible to monetize at least a portion of our investments which we did by bringing in a high quality institutional partner. As detailed in our press release, in January, Fund III sold a 65% interest in Cortlandt Town Center at a $165 million valuation for $107 million. In doing so, Fund III retained a meaningful 35% ownership interest…

Good afternoon. First, I would like to review our 2015 core portfolio performance and earnings and then walk through our 2016 expectations. 2015 was a solid year for Acadia. Our core portfolio performance was at the high end of our original expectations and consistent with what we expect from a high quality street, urban and dense suburban retail portfolio. Occupancy at the end of 2015 was 96.5% which is 60 basis points higher than when we started the year and we've now been over 95% occupied since 2013. Same-store net operating income for the core was 4% for the year. This was at the high end of our original forecast range of 3% to 4%. Couple of things to keep in mind related to this, first, this result did not include any significant contribution from redevelopment activity. The majority of our value-add investments are in the funds and although we capture this value elsewhere, it's not captured in same-store NOI. And then secondly, as Ken mentioned, our street retail properties outperformed our suburban portfolio by about 200 basis points. Some notable contributors to this relative out performance were retenantings at our 17th Street location in New York City where we doubled the former Barnes & Noble rent and also new tenants including Warby Parker at two of our Chicago properties. Leasing spreads for the year were 18.8% on a GAAP basis and 10.5% on a cash basis. What's noteworthy about this result is that these spreads are, for the most part, from lease renewals which include options, as opposed to new leases. Of the total 325,000 square feet of lease roll that generated this result, executed new leases made up only about 15,000 square feet of the total. Turning to earnings, 2015 earnings also came in at the high end…

[Operator Instructions]. Our first question comes from the line of Craig Schmidt from Bank of America. Your question please.

Yes, too soon to say goodbye to Jon, but maybe you could tell us how the CFO search is going?

Sure. We've been very happy with a broad range of candidates that we're getting to meet. We have not identified Jon's successor. So Jon, you are not going anywhere too soon. Thankfully, there's a lot of talented people out there who I think will fit well. And as I've mentioned in past, we also have a very strong team internally, so the ability to cast a wide net, talk to a wide group of people and have the luxury of time to figure this out, I think will turn out really well.

Okay and then looking at Fund IV, you have dry powder of I think $184 million, but you have till August 2016. What is your -- how does that look, that you'll be able to spend that money between now and then or how do you think you'll end?

We have, to start with, we're very happy with the investments we've already made in Fund IV, so we'd be crazy to spend money that we did not find equally exciting places to put. You'll recall in Fund IV we've already monetized some of the assets down on Lincoln Road. What we use, we'll use responsibly. What we don't, my expectation is you'd see that roll forward. And in general, we're at a fascinating inflection point, Craig, where on one hand, you're seeing interest rates, sovereign treasuries at close to 0, in some cases negative and then on the high yield side, rates gapping out. That kind of inflection point has historically for us created some great opportunities where there you might see an acceleration of opportunities. But as we've commented in the past, the public markets, the REIT market has predicted 10 of the last 5 real estate corrections, so it may also not be a busy time. If it's busy, we've got plenty of dry powder and I feel great aunt that. And if it's less so, we'll continue to be responsible which is what we've always done and then we would just roll it forward.

Okay and then when do you think you will start launching Fund V?

Not today, so stay tuned. Again, Amy walked through some of these returns and these were returns well in excess of what we had forecasted, where we're doing a good job for all of our stakeholders. And as long as we continue to do, I think that there will be a lot of good opportunities. And what Fund V may or may not look like, we'll talk about on a future call.

Okay and then just one last thing. There seems to be some strength in your renewals. How long do you think that could be sustained or is there anything that might mitigate some of those strong lifts in renewal leasing?

So I'm going to try to get through the entire call without predicting what happens in China or with oil, et cetera We're at a fascinating time in terms of where the U.S. economy goes relative to the rest of the world. So far in what we're seeing in terms of our conversations with our retailers, in terms of performance, we feel really good and we like the kind of portfolio we own. But I'll wait till I read your forecast on the economy for the balance of the year before we make any specific predictions.

Our next question comes from the line of Paul Adornato from BMO Capital Markets. Your question please.

I was wondering if you could tell us a little bit about the repurchase of fund interests. Why did the investors want to exit the funds and how did you come up with the pricing?

Right and remember, we're in a unique position as it relates to pricing, because we understand what the assets are worth. And in our private funds, we work very hard to make sure our investors have as much transparency as possible. What happens and I'm not going to get into the specifics, because of confidentiality with the investors, but periodically, there are institutional investors who have gone through changes, either through -- if there are pension funds through mergers and acquisitions or if they're taxable entities for tax reasons, that causes them to want to sell their interest, albeit at a recognized discount to the stated net asset value. Very often, those secondary transactions occur outside of Acadia directly and so we have seen them trade. Periodically, we will step in and say okay, we will be happy to make a market at that price and so we did. So it's fine for us. The investors are happy and it's a good opportunity for us, the shareholders to increase our stakes in Fund II, Fund III which I think will innerve to all of our benefits down the road.

Okay and as a follow-up, I know you've said in the past that you would like to have a little bit more of City Point. And so, can we expect similar transactions going forward and what's your appetite?

Our appetite is strong, but I'm not going to predict anything. Again, we don't go out and tender for and it generally is something that is happening because of shifts in a fund investors position. So if it happens, you've -- Jon's walked through our balance sheet. You know we're well capitalized; you know we're bullish on the portfolios we own. So if it happens, great and stay tuned and if it doesn't, then enjoy the profits we're making as it stands from both our co-investment piece, as well as the profit participation above it.

The good news is that now that we've bought out an incremental [indiscernible] of 5% of Fund II.

8% in Fund II.

Oh, 8%.

And 5% in --

8% of Fund II, we now own 8% more of City Point.

Right.

So one step at a time.

Our next question comes from the line of Jay Carlington from Green Street. Your question please.

So Ken, you mentioned in your prepared remarks, that you have a lot of comfort on the spread between your end place rents and market rents across your portfolio. And I'm just wondering, is there a way to give us a sense of what that spread looks like to see how we're thinking about that margin's safety that gives you comfort?

Yes and we've really struggled, frankly, with how do we put forth this information, given that every block, every street corner, especially the street retail, it varies so much that we keep trying to come up with a homogenized way enough that it's not space by space and we're struggling with it. What I'd suggest is look to the successful retenantings that we have and the fact that we're as bullish as we say we're in terms of getting back space. I've looked at what some office REITs have done in terms of disclosure, we're playing with that and if we can get there, I'd be happy to. But what I don't want to do is overpromise or provide too specific a market rent, because to take on SoHo, for example, the rents range from mid, call it $400, $500 up to north of $1,000 and it's space by space and that's been our struggle.

It makes sense. I guess we're not getting that to the decimal point. Switching gears, on developments, have any of the yield assumptions changed in your pipeline right now?

No, no. Everything feels, thankfully, more or less where we have it. What will be interesting to watch as an industry depending on, is we have not yet seen construction costs come down. And intuitively, we would think we might start to see it. But at this point, it has not emerged. But given the commodity cost declines, et cetera. And then we have not seen a falloff in rents, thankfully, but we're at an inflection point so we should see. And then finally, what I'd point out is we don't have that much new development in our pipeline. It is a relatively small amount compared to historical, just because of the types of investments we've made over the past several years. So it's a less and less significant piece of what we're working on overall.

And maybe last one for me, just when you look at the buyer pool that you saw in this fourth quarter for your recent street retail deals, whether that's West Chicago, Seaport district or in San Francisco, have you seen any change in who you're showing up against in the auction tent? Or what does that look like today maybe versus the last couple of years?

So here is what we're hearing and when you show up in a negotiation, the seller or their brokers may or may not be letting you know exactly how many people are actually bidding against you, et cetera. But anecdotally, what we're sensing is that those buyers dependent on the high leverage market, especially the CMBS market, are having a real hard time getting over the finish line. Secondly, if there used to be 10 bidders and 4 or 5 serious for a given asset, it seems to be a narrower group. The deals seem to be transacting, especially in the high-quality assets, at similar cap rates. And again, if it's a very high quality asset, we're still seeing sovereign wealth funds et cetera, looking at it relative to the other zero-return alternatives and stepping up meaningfully. But it seems like that pool is narrowing. And for the first time in awhile, much to my pleasure, in the screening process in the negotiation with sellers and their brokers, certainty of execution is become much more important. And that always works to our benefit where we have a meaningful balance sheet in terms of our core portfolio, as well as a discretionary fund and as we pointed out, a lot of dry powder on that side. For a couple years, no one really cared where the money was coming from. They are starting to care and that's a good sign and it makes total sense in light of what you're seeing in the marketplace in terms of volatility.

Our next question comes from the line of Christy McElroy from Citi. Your question please.

Jon, you've got some equity issuance built into the guidance. It looks like you've already issued about 1 million shares in Q1 with OP units. Can you break out the average price on the ATM issuance in Q4 and year to date versus the OP units? I think you just gave an average price for both in the release. And then what's your strategy for issuing additional equity for the balance of the year as you think about capital needs, how should we think about timing?

In terms of assumed pricing, are you talking about average price for 2015 or talking about assumptions for 2016?

I'm talking about the average price for what you did in Q4 and year-to-date 2016.

So Q4 and let's start with 2015 as a whole. When you look at our average issuance for 2014, it was -- for 2015, I'm sorry, it was north of $32 a share. In the fourth quarter it was closer to $33-plus a share. And you should expect going into 2016, that we would issue at or above those levels. And again, the assumption is in terms of volume of issuance, if we're looking at 200 to 400 of core and our pro rata share of fund of $40 million to $80 million, so you're looking at 300, we would do that on a leverage neutral basis. So you're looking at somewhere in the magnitude of $150 million to $200 million of equity issuance.

So the OP units were around $32?

$32 plus.

Yes and let me point out, Jon correctly articulated what we would do. If you look over the past few years, you'll also see very clearly what we won't do which is if there's volatility in the market and our stock drops off, we don't issue, period and if it means that our acquisitions slow down, so be it. That we've been very disciplined about match funding, but we also have other sources of capital readily available, such that if you pull out our core growth assumptions for a second and frankly, we put those forward to help everyone understand their model but we'll meet them only if it's accretive to NAV. And the flip side is through capital recycling, through asset sales, through fund monetizations, et cetera we can run our fund business almost indefinitely without having to go to the public market, if the public markets aren't there. So the beauty of having access to the public markets is only when we can responsibly raise that capital. And if you look over the last several years, I think you'll see that we have only match funded when it's responsible and have not gotten too far over our skis in terms of leverage or acquisition commitment.

And in that vein, you've talked a lot about the fund dispositions. But given the strength in the private markets, how would you think about core dispositions if suburban assets as a source of capital if the equity markets aren't there?

Yes it would make -- it could make sense. It's always complicated. There are tax and other issues, but it certainly could make sense. And there's a few things that the team's busy working on to fix. And then in one instance, we're looking forward to our supermarket anchor tenant getting a strong credit rating such that that could trade as a supermarket tenant for one deal I've highlighted before; that companies hopefully will go public one of these days. And so you should expect to see dispositions of assets that we don't see as core to our long term growth. That being said, our relatively small Company does not need to shed high quality core assets to fund its growth. We're in very good position in terms of our balance sheet and a very good position in terms of our fund dry powder.

Our next question comes from the line of Todd Thomas from KeyBanc Capital. Your question please.

Ken, back to the cushion between in place and market rents, you talked about some of the challenges and volatility in retail and the markets more broadly. Do you think that you end up getting back some of this space sooner rather than later? Are there any indications that you might have some early recapture opportunities on the horizon?

I don't know. What we have seen historically is that in the street retail business, there are more mark-to-markets, either because you can get back space if a retailer is not doing well and that happens occasionally, but also just because the leases are shorter in duration with more fair market value resets. And we walked through on the last call about $5 million of opportunities; a big chunk of them were in there. But as it relates to the specific negotiation, I don't want to forecast, other than if I had my wish for certain spaces, we would end our year with lower occupancy if the leasing team can pull off what they're trying and that would be great news, but stay tuned.

Are you able to provide any color around sales trends during the quarter in the street portfolio in the sub-markets where you operate?

Not really. There are a lot of great things about street retail, but the sales reporting does not come close to what our friends in the enclosed malls have been able to achieve. So everything is more anecdotal and it varies, tenant by tenant, street by street. So other than the macro themes that we're all reading about, it's really hard to give much more color.

Okay and then just shifting gears to Brandywine Town Center, you have $166 million maturity later this year. What's the plan to handle that as of now and you only own 22% of that property. Would you want to increase your stake as part of a larger recapitalization of the property or are there any options to take out or be taken out by your partner? And is that a potential option here?

Yes and in fact, it's contemplated that sooner or later we should be able to accomplish that, the debt refinancing should be relatively straightforward. Jon?

It is and most likely the tack there will be to do a bridge financing for some interim period of time until we come up with the ultimate conclusion and resolution in terms of that asset. So you should expect to see that just refinanced in the next couple of months.

And then a recap of it along the lines of what you discussed at some point in the not distant future, at which point then, we're in a position to have that unencumbered.

Okay, just lastly Jon, you mentioned some retenanting in the suburban portfolio that'll be a drag on the same-store NOI growth in the first half of the year. Can you just discuss what's happening there which properties or retailers where you're experiencing some down time?

It actually it goes across a number of properties. It's no one specific tenant and so it's normal rotation, primarily shop space. But it does have an impact on that same-store metric. So again, as those tenants go out and we incur down time, obviously it's a drag, but then they'll come back in the second half of the year. Broad based still across the portfolio in a number of tenants.

Our next question comes from the line of Jeremy Metz from UBS. Your question please.

I just had one quick follow-up on the suburban question that was just asked. Can you quantify that in terms of the NOI impact, to get a feeling for how much we should think about going out in the first half of the year? And then it sounds like, Jon, we should expect all that to come back online by, call it, the end of the year?

More or less. So if you look at the same-store NOI base, it's $90 million, so every percentage is close to $1 million, right? So if you think of 3% to 4%, so if that goes down 1% or 2%, you're talking $1 million to $2 million of down time and then swinging back up in the second half of the year.

Okay and then just one other one here. There's obviously a lot of cautious commentary about the retail environment. Ken, you highlighted in your opening remarks and in answers to other questions. So I'm just wondering if you're seeing this caution play out in any lease negotiations you're having either getting more difficult or taking longer just to execute. And then if you can just break that down between your urban and suburban portfolios.

On the urban and street side, we have not seen it yet. And the one pleasant surprise has been none of our retailers are talking about the strengthening dollar and foreign tourism the way that I thought I might have been hearing, that in general, their discussion is their management teams, their CEO understand that these cyclical changes occur. But when they can open the kind of important location to present for their brand, they're willing to do that. Everyone complains about rent and the only distinction in the street and urban is the expectation that trees grow to the sky. Now retailers are saying, we can't participate in that. But we as landlords have never been strong advocates of that kind of rent growth. We've enjoyed it, so maybe you've seen some level of stabilization. On the suburban side, it's very box specific, to our suburban retailer tenants, to their credit they have been very disciplined. And so we have not seen over the past several years any meaningful growth. And thankfully, our retailers have not stretched too far, so if there is some form of a softening, my hope is as it relates to new leases, that our retailers are making responsible decisions. That's certainly the sense in our negotiation. So I have not sensed a slowdown, but final point, we're 96% occupied. I think we signed, Jon, 15,000 square feet of leases last year?

Total.

So we're like the last person you should ask, given the quality of our portfolio. And we'll be watching how our peers are responding to all of this, but that's probably a better way to gauge it.

Our next question comes from the line of Jim Sullivan from Cowen Group. Your question please.

You've talked quite a bit about the mark-to-market opportunity, urban street retail versus suburban, following your prepared comments, highlighting that. You also mentioned as a second source of the stronger internal growth, contractual provisions, I believe I got that right. And I'm just curious, I'm curious on that point, Ken. If you could outline how the retailer appetite, as well as the lack of supply for good street retailer urban locations translates into your ability to negotiate stronger bumps, better lease terms generally and perhaps TIs?

Sure, so some of this, Jim, has to do with how these leases have historically been structured by the traditional street retail landlords which historically, the contractual growth was annual more often than not and closer to 3%, as opposed to on our suburban side where its been every 5 or 10 years and 1% to 2%. So that's a historical custom, that also, historically, the landlords put in fewer dollars in terms of retenanting in the fragmented street retail business than in the more traditional shopping center business. So those are distinctions that we have not created, but we certainly enjoy. The flip side is, as I pointed out, the retailers do not historically pay percentage rent. The retailers do not report sales. You have less ability to curate. There's a whole bunch of different reasons why that occurs, but there is a roughly 2% to 3% annual growth in our street retail portfolio and that's about 100 basis points less than what we see in our suburban portfolio. Take that 100 basis points of contractual growth and then the periodic mark-to-markets that we've been experiencing and that's where we get the roughly 200 basis points of outperformance in our street retail portfolio versus our more traditional, more defensive suburban and even urban box portfolio.

Second question, you had referred in your comments about the investment market and the pool of buyers. You mentioned the sovereign wealth funds and of course, there's been a lot of speculation about their continuing appetite to invest in U.S. commercial real estate, as well as their need to pull funds back from different markets. I'm curious in that respect whether you've seen or whether you understand there to be a distinction on the part of the sovereign wealth funds and where they're looking to source capital to the extent they need it to pull back. Are they, do you hear them talk about their real estate allocation changing, going up or going down in this environment?

Not really yet. We have watched, I guess people are joking about petro dollars turning into petro pennies and thus, impacting how certain the commodity base sovereign wealth will allocate towards real estate. So far, I have not seen any material pullback on that side. I think we also need to watch the denominator effect of domestic funds. And as the public markets potentially tradeoff across-the-board, that could also have a material impact on real estate allocations. And we've been through all of these cycles before. So it is a little early to tell and we have some folks who are saying I am earning 0% in the following safe investment and if I can own great real estate that has growth upside, has a fair amount of defensive attributes in terms of if the U.S. or if we're in a global recession, I like that at the kind of spreads that I'm seeing today. So to me it feels more like a fork in the road and it's still early between the high risk, high yield gapping out and then a flight to safety which is equally understandable. So we'll watch it together over the next several months.

Okay and then a final question for me, if I might. You had made the distinction in your prepared comments about maybe what I can call residential density, as opposed to tourist density in talking about street retail. As well as the distinction that comes with higher luxury price point real estate. I'm just curious, when you think about that residential density benefit that you've been able to tap into over the last few years, we have a market now in the residential side where permitting, multi-family permitting in some markets has gotten to very high levels. And I'm curious whether in connecting the dots you see the risk of maybe an unhealthy increase in supply in the near term in any of the urban markets that you've been looking at over the years?

Generally not. In other words, while I may be sympathetic to some of my friends who are residential condominium developers in New York City or in San Francisco, I don't worry for a second that they will be fully occupied; they just may not get the prices that they want. But those shoppers are showing up in those buildings. They're not going to remain vacant. Maybe in some other cities, but that's not going to happen in New York. It's not going to happen in Boston, San Francisco, etcetera.

Our next question comes from the line of Michael Mueller from JPMorgan. Your question please.

I apologize if this was touched on earlier. I missed the beginning of the call. But are you seeing anything different in terms of street rent trends when you're thinking about Manhattan versus the sand box that you typically play in elsewhere?

Yes and let's make a distinction between the mega, mega location, the multi thousands of dollars a foot that we have yet to play in that sand box. So I will defer to those in terms of Fifth Avenue and otherwise. But as you go to M Street in Georgetown or our rush in Walton in Chicago, you're seeing rents in the $100 to $400 a foot range and those retailers can very easily understand their rent to sales, both inclusive of potential omni-channel benefits and otherwise. And those rents have grown, but they've grown in the, call it, 10% a year as opposed to some of the markets where there was a huge growth and perhaps they take a slight pause and rest. But we've really not been as involved in those, so there is that distinction of the mega flagship versus our more live, work, play street retail.

And then one question on the structured portfolio. Looks like the balance there is about $120 million, $125 million and it talks about maturities from 2016 to 2020. How much matures in 2016 and 2017?

So it's somewhere between I think $15 million and $20 million in 2016 and in 2017 I think that it's another $10 million, $15 million. So in total I'd say about $30 million, $35 million. And as we've talked about before, we target keeping that total portfolio to somewhere around that level between $100 million and $150 million. So expect to see us continue to recycle that capital and maintain that type of level in terms of total portfolio invested in the structured finance.

Our next question comes from the line of Rich Moore from RBC Capital Markets. Your question please.

So you have, you sold 65% of Cortlandt and you still have 35% left in the fund. I'm assuming at some point, that 35% goes as well. What has to happen to the asset at this point before you decide you'll want to dispose of that piece and then who is most likely the buyer for that?

So pretty simply, we have an adjacent parcel that we're making a lot of progress and will be developed over the next year or two. And we felt it was important because they are adjacent properties that have a host of other issues involved that we stay involved with a meaningful ownership stake in the existing Cortlandt property while we developed a new one. Assuming we get the new one done in the next two plus or minus years, it's our expectation that we would sell the 100% ownership stake that the fund has in the new, as well as monetize the 35% balance. Whether it's the existing institutional investor who has certainly shown interest, great and if not and it goes to the highest bidder elsewhere, that's fine too. There's a host of mechanisms in place, so very comfortable that both features work once we responsibly stabilize the project next door.

And then just one other question on the -- it seems strange. The operating expenses this quarter, just the straight operating expenses bounced unusually higher than what they normally are. But most of that seemed to be recovered, so your CAM reimbursements were sharply higher than they usually are, but percentage-wise they were pretty similar. I'm curious what was going on there. Is there something that's going to roll forward into some of the future quarters or maybe you guys have some color on what happened with those numbers?

Given the fact that it's been a very mild winter season to date, our property management group has taken advantage of it and done additional maintenance on the properties, mostly in the lots. And that's given rise to the increase in the operating expense and that's mostly been in our suburban portfolio. And there is a higher recovery of that type of an expense, so normally, we have somewhere in the mid 70s to low 80s in terms of CAM recovery and this quarter it's in the high 80s. The way we think about it is rather than look at any given quarter, look at it over a more extended period of time. And you should expect to see recoveries of CAM somewhere in the low 80s, high 70s, low 80s, so that's the color or that's what's going on with the fourth quarter.

And so those expenses that you're seeing in the 4Q for the properties, they kind of continue on. Is that like an ongoing initiative sort of thing or is that --

I think so, if you look at the average for the year, it's about a little over between $3 million, $3.5 million. You should expect something more along those lines as opposed to the a little over $4.5 million that we had in the fourth quarter.

Our next question is a follow-up from the line of Todd Thomas from KeyBanc Capital. Your question please.

Just a quick follow-up. I just wanted to go back to Brandywine Town Center for a second and just follow-up there. The property throws off more than 10% of the overall core portfolio's base rent. It's the largest asset in the core portfolio and I just want to understand your comments maybe set expectations around what a recapitalization of that asset in the future might look like. I don't believe that Acadia's acquired a suburban property in several years in the core and I'm just curious whether there is interest to increase your stake in Brandywine, whether that is being contemplated.

It is being contemplated. In general, Todd, you're right, we have not, except in a few selective instances in Westchester or up in Boston, added to our suburban portfolio. I think the distinction I would make would be in those cases where there's -- where we already own it and so that there's an opportunity on that side. So I think that you could expect to see that over the next few years and we -- I don't want to get into it now, but we put some mechanisms in place and we certainly have the rights. So you should expect to see it, but also expect to see the rest of our core portfolio grow. And I don't think it's going to be a meaningful piece. It's a good asset, we like it fine, but I don't think it's going to be viewed as a change in our direction whatsoever.

Okay and does the debt, is that collateralized, is Market Square Shopping Center part of that or is it just Brandywine Town Center?

That includes Market Square as well.

Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back to Ken Bernstein for any further remarks.

Thanks, everyone, for listening and we look forward to talking to you next quarter.