Good day, ladies and gentlemen, and welcome to the Q1 2016 Acadia Realty Trust Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. John McMahon. You may begin.

Good afternoon, and thank you for joining us for the first quarter 2016 Acadia Realty Trust earnings conference call. My name is John McMahon and I joined Acadia as an intern in the summer of 2014. I turned full time in the summer of 2015 and I am now the Assistant Property Manager for our NYSE assets in the Property Management department. Before we begin, please be aware that statements made during this 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, April 27, 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 earnings and operating results. 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, John. Great job. God afternoon. Thanks for joining us. I am going to start today's discussion with what we saw in the first quarter both in terms of operating fundamentals as well as the transactional market. Then Amy will discuss our activities in the fund platform and Jon will discuss our operating metrics, balance sheet and earnings. For much of the first quarter we saw increased volatility in the global financial market and this has caused periodic concern that this turmoil would lead through to the US economy and potentially impacting both operating fundamentals as well as valuations of real estate. So with this volatility in mind let’s first look at our operating fundamentals. In terms of our portfolio’s property level performance, notwithstanding some concerns about the potential US slowdown, when we look at our first quarter results we saw steady performance consistent with a positive albeit low GDP growth environment. We saw solid performance in terms of occupancy, in terms of tenant demand and in terms of tenant performance. Then in conversations with our retailers we continue to look for signs of material softness as well as any shift in their focus and so far while we see a few retailers facing existential issues, most are showing discipline and a commitment to address the changes, the challenges and the opportunities that they are facing. Retailers recognize that their shoppers are demanding them to be authentic, experiential, differentiated that in a global omnichannel world the risk of blurring channels is increasing, retailers recognize that key locations in major live, work, play, gateway cities are becoming even more important to them to establish and maintain their brands and to meet their customers' needs. And then conversely, more generic low rent, but lower quality locations that are not particularly profitable and…

Thanks, Ken. Today I will review the steady progress that we continue to make on our fund platforms, buy, fix, sell, mandate. First, consistent with prior quarters we continue to make important progress across all product types on our existing fund redevelopment pipelines. For example, on the suburban fund, in April we executed a new 20 year lease with Giant for an extended supermarket at Fund III’s Arundel Plaza in Glen Burnie, Maryland. As a result, we can now begin the redevelopment of that shopping center. Then, with respect to our next-generation street retail, which targets more experimental retail corridors with strong economic drivers, we continue to see strong demand from national and international retailers for Fund IV’s Broughton Street collection in Savannah, Georgia. As of the first quarter, the portfolio’s lease rate totaled 55% which includes leases with Victoria Secret, H&M, J.Crew, Lululemon and most recently Mac Cosmetics. And on the urban and street retail funds, Brooklyn remains an important market for our retails. Here, as you know, Fund II is developing city points, a 1.9 million square feet mixed used project with about 540,000 square feet of retail. The retail components is already two-thirds leased on the basis of square footage and is anticipated to open as follows. Alamo Draft House on level five will open in late June, Century 21 on level 4 and 3 opening in mid-August, Target on level 2 opening in late July and Trader Joe's and Decal Market on the below grade of concourse level opening this fall. However, from the perspective of projected rent revenue, the project is only about 40% leased with a significant amount of the remaining value attributable to the street level small shops. These jobs are anticipated to begin opening around the holidays, this includes our newest REIT…

Good afternoon, along with the strength and stability from our core portfolio and Amy just discussed the profitability from our Fund business. The third key component of our business is our balance sheet which continues to serve as a strong platform to both our core and funds. We historically match funded our growth on an accretive and disciplined basis; we've grown our total market cap from $1 billion to $3 billion and doubled our core revenues from $70 million to $140 million over the last five years. And over this period, we've averaged about $200 million a year of equity issuance using both stock and OP units on an accretive basis to fund this growth. Year-to-date '16, we secured another $190 million of equity on match fund basis at an average net price of $34 per share. This consisted of $20 million of OP units, $37 million of stock issuance under our ATM and $125 million offering which we structured on a forward basis. We use this forward structure in connection with $150 million street retail portfolio which we expect to close on over the next couple of quarters as Ken discussed. In terms of debt, we continue to use very conservative leverage as reflected in our current net debt to EBITDA about 5 times which is consistent with our leverage levels over the last few years. That being said, even though we don't have much debt, we remain focused on minimizing interest rate and maturity risk and diversifying our capabilities to access a wide range of types of credit. During the quarter, we continued to develop our ability to borrow unsecured by closing on an additional $50 million unsecured term loan which now puts us at 40% unsecured in the quarter. And other than any balance which we may…

[Operator Instructions] And our first question comes from the line of Todd Thomas from KeyBanc Capital. Your line is now open.

Ken, you started your comments by outlining the portfolio weightings between street, urban, and suburban at 50%, 20% and 30%. And in your annual letter to shareholders you commented that Acadia now has an ideal blend of properties both by product type and geography. Just curious you know what shall we read into that as it pertains as how you think about allocating capital going forward for the core portfolio here?

In general, I think you should expect the allocation to be substantially focused on street and urban. Now, the specific of whether or not it's what we call street versus we call urban, it is going to be primarily if not all in those core markets that we are involved with, Washington DC, New York, Boston, Chicago, San Francisco. Right now, our bias has been and last year we were not successful in acquiring street retail because of assumptions that I outlined. But even on a street retail, we are going to take a very realistic view as to how much of a defensive portfolio do those assets have and they'll have a defensive profile either because of low market rents or high credit quality and almost in every instance they have to have great location. So, in short, they need to be and will be either street or urban in great location in our core market. As it relates to the specifics of 5% one degree or another, we’re relatively small company, so each acquisition seems to move out a little bit.

Okay. And then my second question, just switching over to Fund IV, Ken or maybe Amy, you mentioned that the market volatility has potentially created some opportunity for new investments in Fund IV. But the pace of acquisitions overall has been a little slower than expected. Do you end up being fully invested by August when the investment window closes or do you roll some of the committed unfunded into Fund V or do you extend the investment period for Fund IV, what happens there?

So let’s start with what we won’t do, which is make silly investments and any of the other possibilities are there and here is what we are seeing on the fund side as opposed to on the core. When the market volatility and debt spreads widen, sellers do what they normally do at least initially and they move to the sidelines. We are starting to see now sellers or borrowers recognizing for a host of reasons that they need to transact and perhaps the fear of cap rates backing up a 100 basis points as some people were either predicting or wishing for or fearing. Perhaps that was overstated, but there has been a reset on secondary assets and that’s creating an opportunity for us and we are seeing an opportunity to and/or starting to see an increase in the deal flow from that. Exactly, the amount of dollars, exactly the time, I don’t know. But there was a bit of lag and now we are starting to get some interesting looks at opportunities with wider spreads than we certainly saw a year-ago. So let’s see what make sense, and we have a pretty good point of view as to both high quality great locations on through to the second locations in terms of where our retailers are interested in maintaining or expanding and we will play that accordingly.

And our next question comes from the line of Craig Schmidt with Bank of America. Your line is now open.

Great. I was just wondering, Ken, given your street retail in Manhattan and your street retail outside of Manhattan, where do you think you’re going to see your strongest rent growth in the next say, three or four years?

So Manhattan being a country into itself, there is going to be all different pieces of Manhattan that experienced stronger growth some streets versus others. In general, we had taken a somewhat conservative view over the last 5, 10, 15 years as to New York growth and has always been pleasantly surprised to the upside. It is a very dynamic market and hesitant to bet against it. That being said, Chicago has been great, Boston is an important to our retailers, San Francisco is another very important market. So Craig, as we look at the opportunities, our expectation is that growth is going to look more like contractual plus a bit and contractual I am saying is partly 3% a year growth and then what we have seen there is some amount in excess of that that provides rather than a 100 basis point spread relative to our suburban. It’s more like 200. Any of the markets we are in could easily provide that and protection and we need not see 10% growth that I was talking about earlier in our prepared remarks and any of them. So the short answer is, I don’t know. Each street will be different, each of the markets will be different and where we see the opportunities and the right balance between upside and protection, that’s where we are going to execute.

Okay, great. And then maybe to Jon, the expectation that maybe second quarter same-store NOI would be a little less than the first quarter. What will be different between those two quarters to cause for that may be slowing of the growth?

So second quarter, we are expecting some more tenant rotation and more so actually within the suburban part of the portfolio. Case in point for example, we have a least at one of our Long Island shopping centers, CVS drug store that will be rotating out and we have already signed a replacement lease for that, but there will be downtime as a result of that. So there will be a couple of instances of that during the second quarter, which again will lead to a lower result for that quarter. As well as, as I mentioned in the first quarter, we did have some relative expense savings versus historical quarter, which also drove the result in 1Q. So all of those factors will lead to what we expect to be a lower second quarter. But then as I discussed on the previous call and I reiterated on this call, second half of the year, we think that that reverses and we actually pick up above the average such that we will be in that 3% to 4% range for the year.

Great, thank you.

And our next question comes from the line of Christy McElroy with Citi. Your line is now open.

Hey, good afternoon guys. Jon, just a follow-up on Craig’s question, just in terms of the turnover impact, just to get a handle on the occupancy trajectory, is that turnover, is that downtime already reflected in the Q1-end occupancy numbers or should we see further downside in occupancy through Q2. And could some of that spill over into Q3 same-store NOI growth given that you didn’t really see much of an impact in Q1 and you didn’t change your guidance range?

Yes, so some of the occupancy decline this quarter is reflective of that example that I just gave you. So for example that one lease, that CVS lease is about 10,000, 12,000 square feet, that’s 25 basis points of occupancy right there. So that was a contributing factor. Again, we expect a couple more, so we may lose another 25 basis points of occupancy, but then that turns around again later in the year. In terms of does that lead into the third quarter, the exact timing of some of this is obviously – to pin point it exactly which quarter some of this happens is difficult to time, but more or less that’s our expectation in terms of a rebound in the second half of the year. So we will obviously keep everyone posted, but that broad trend of a little bit under first half, over the other second half is the current expectation.

Okay. And then just with regard to the ground floor leasing at city point, you mentioned, one – I think one lease that would be announced at some point, but what percentage pre-lease is that safe today? And is that now sort of a full leasing effort at this point? I know you’re holding back for a while. Maybe you can talk about some of the leasing dynamics there as the upper floors and the concourse start to open this year?

Yes, we are now ready to lease because we have all the anchors slated for their grand openings and now we can know how to slot it in. And so the first time, relatively recently we can do high quality tours to the smaller retailers who are going to occupy the street level. So that is currently going underway as Amy mentioned. We signed our first lease and as Amy mentioned, she won’t let me say who it is, but we are excited about it. So we expect that to continue to pace over the next three to six months as we head towards the holiday season.

Thank you.

And our next question comes from the line of Jay Carlington with Green Street Advisors. Your line is now open.

Great, thank you. Hey, can you talk about lower embedded rent growth assumptions and some of the recent street retail deals I guess some outlier bids have disappeared. Can you maybe talk about the impact of street retail cap rates given what sounds like lower growth expectations?

Right, and so here is where it gets a bit tricky, because on one hand, and a lot of what I am speaking about is looking at other third party trades and anecdotally determining where pricing and cap rates where. But a very, very small segment of retail that traded over the last couple of years on street retail had leases at market and that was because rents were growing. Rents doubled in some of the markets we have been involved with over the last five years. So the rental growth was significant enough that to the extent that the leases were turning in 1, 2, 3, 4, even some cases six years. Sellers were acting buyers, and buyers were capitulating in pricing in that future growth. So when you looked at the going in cap rate, it wasn’t representative of the way we think about cap rate. It was simply then reverting back to where that growth when that lease comes due in two years out. The problem -- because we are happy to pay for future growth, the problem was that sellers were saying, hey rents doubled over the last five years, why won’t they double over the next five and we said they weren’t and we took a fair amount flak from some shareholders like how come you’re not adding more of these assets and brokers et cetera, but there was no reason to expect that. It’s not healthy, it’s not rational, it isn’t and shouldn’t be required to own great street locations and it doesn’t change retailers point of view, which is they were thrilled to come in 2014, 2015 and they are going to come in in 2016, 2017, 2018, but they can’t come in at 20% higher per year in perpetuity. So we saw…

Okay. So maybe as a quick follow-up, I mean – maybe you weren’t participating in these, but at the end of the day, the cap rates that were done were printed lower, maybe with 2s or 3s on them for that growth. And today, maybe you could benchmark some of your recent street retail deals, but are you seeing some normalization where you’re getting more rational cap rate, but albeit it’s a little bit higher today than what it was last year?

So for those deals where the leases are more or less at market with 3% growth and a high quality credit, good location et cetera, they are very low cap rate. Depending on the city, the street, the specifics of it, it ranges from in the 3s to maybe in the upper 4s, and I don’t see them in the 5s much. But they are continues to be superior growth in those. Then as you move into more secondary locations, you can see cap rates moving up, but that’s kind of where it starts and where we think the trades are going to occur.

Okay, it’s very helpful. And maybe just lastly, I guess as you look at your acquisition guidance for the year, given I guess you’re almost at the mid-point four months in. Can you talk about where you think you will end up at the year and if your equity cost of capital influences how aggressive you will ultimately be?

Well, thankfully you broke up on the part of the cost of capital piece, but –

Just determining, given how your cost of capital for your equity trades, will that impact how aggressive you will ultimately be for the year?

What determines our acquisitions are, are they great real estate, do they have good embedded upside and protection and then most importantly, are they thesis consistent which is within the four markets that we are currently active in and great locations. If they check all those boxes, and the pricing is acceptable on a match-funding basis, then we can proceed. If they don’t, if they are not accretive, accretive to NAV, most likely accretive to earnings, if they are not accretive, we don’t do them and that’s why you saw us under-acquire last year. So to predict what we don’t have under contract now and what might occur one or two quarters out, I don’t need to do that other than historically. The pace that we have done certainly would get us to the higher end of our current guidance. And stay tuned, if the deals make sense, and I think that they are additive to our portfolio, we will do them and otherwise we won’t.

That’s perfect. Thank you.

And our next question comes from the line of Paul Adornato with BMO Capital Markets. Your line is now open.

Thanks. Good morning. Ken, sometime ago, you were very early in discussing Macy’s plans to open up some small shops in some of your properties, and first as a first question was wondering if you had any update on their experience in small shops. And second perhaps more broadly, since you’re in touch with so many mall based retailers, any grumblings or movement of the mall based retailers too greatly or maybe not greatly, but just to reduce their fleets in order to provide for more capital for street level retail?

So, I’m not going to speak about any one retailer specifically, but we can talk about an ongoing trend, which is that what our retailers are telling us is, they need to be protective of and I talked about a blurring of channels. They need to be protective of and focus on making sure that they’re in front of their customer in a brand enhancing way through all of the different channels that is 21st Century retailing. And by the way, it’s not just fashion, so it’s not just the enclosed mall and apparel side, it’s almost every piece of business that we’re involved with. And the channels are not just bricks and mortar versus online, it’s enclosed malls versus street retail, it’s street retail versus outlets, et cetera. And, retailers realize that if they devote too much time and attention to any one channel at the expense of others, they regret it. So if all their focus is on factory outlets, which is a great business, their brand diminishes and they lose their ability to sell through in that channel. Any retailers who think that they’re going to be online only or online dominant, they’re missing the importance of bricks and mortar. So with that said, there is going to be high productivity locations and low productivity. The high productivity ones, whether they’re enclosed or factory outlet, or street or suburban and whether it’s fashion or food or discounters, et cetera, retailers are recognizing, they need to pick great locations that present their brands to their shopper when the shopper wants it and that means 24x7 live work play where the shopper is heading. I read in the journal, I think it was yesterday, a day before that the populations as they move and urbanize, there has been an increase of close to 50% in college graduates moving to the major cities. Retailers recognize that data and they shift accordingly. So there is a shift to street retail from a lot of different areas. There is even a shift and we talked about it in the past of online retailers to street retail. We’ve opened Warby Parker and Bonobos in Lincoln Park, Chicago accordingly. So all of those factors are at play and what retailers are recognizing is just opening stores for store sake is 20th Century. Now, they’re focused very much on picking the right locations, getting their brand in front of the customer and the kind of real estate we own, we think lends itself very nicely to that.

Thanks. So maybe just one quick follow-up, can you tell us where occupancy costs are as a percent of rent in terms of the new leases that you’re signing?

It runs the gamut for, the retailers, I was just mentioning Warby Parker, Bonobos, their occupancy cost relative to sales is very low, because they’re killing it. For other retailers, they may start off a little slower, and be at the higher end of their goals, but ultimately every lease we sign with our retailers, they have every intention of it being profitable and that means probably getting below 20% in a more traditional way of thinking about it. But it really varies, Paul.

And our next question comes from the line of Michael Mueller with JPMorgan. Your line is now open.

Thanks. Hi. So just looking at the -- real quick on the suburban properties, we see a bunch of states like Vermont, Illinois, Indiana, Michigan, Ohio, where you have one asset in a state and just wondering I guess do those tend to go away overtime or how do you think about something that may be a good standalone investment, but be isolated relative to the rest of the portfolio?

So the short answer is they tend to go away overtime, but I’m not particularly concerned and do keep in mind that if you overlap where we’re active on the fund side, having those assets also gives us some good market reads on what’s working and what isn’t in a bunch of areas that I promise you, we won’t be adding assets to our core portfolio, but that we may be adding trading assets and that we do and that we’re active. So they’re not as lonely as they sound, but they go away.

Got it. Okay. And then just a quick promote question, what are the current thoughts on, if you’re thinking about the visible promotes beyond 2016 relative to the 9 million to 11 million, $0.11 to $0.14 that you’re going to book this year. So what’s visible beyond that?

Yeah. So recall last year when we were talking about the promotes, we were saying that our expectation was, it’s a multiyear process obviously in terms of monetizing Fund III and it could take anywhere from 2 to 4 plus years. So probably a good way to think about it is if you take the 15 million and you average it over 3, 4 years, that is probably not a bad way to forecast, we’re a little bit heavier this year obviously at the 9 million to 11 million and again a little bit of a mismatch, we’re talking about 15 million, net of the NOI and fee income and the 9 million to 11 million doesn’t include that. So if you take that 9 million to 11 million, it’s more like 5 million to 7 million, net of those other dilutive factors, 5 million to 7 million relative to the 15 million, about a third, a little bit over. So a good way to think about it is, if you do three years, 5 million a year obviously, that would be the expectation for the next couple of years. It’s going to depend on the timing of the fund dispositions obviously, but that’s as good as an assumption as any.

Got it. So the 9 million to 11 million, so just taking that way, because I think that’s the way at least most of our conversations go with folks and that’s how they tend to stick it into the model. So with that 10 million, once 2016 is wrapped, about how far through the process are you? Just thinking about from that perspective.

About a third of the way through.

One third of the way through at the end of 16?

That’s right.

And our next question comes from the line of Rich Moore with RBC Capital Markets. Your line is now open.

Hi, guys. Good afternoon. Looking at the fund acquisition guidance that you have of 200 million to 400 million, it sort of strikes me that there isn’t enough capacity really in Fund IV to get to the high end of that guidance, which one suggested that, is that guidance actually good still? Two, does it also mean maybe that we go right into Fund V, i.e., there is no lag getting Fund V going and you pretty much feel like this Fund V will contribute to this guidance as well?

Yes, Rich. It is likely and since 2001, we have never gone without one fund being active. So I’ve no concern one way or another that we’ll have capital to deploy when we see the right opportunities.

Okay. So Fund V, I guess short answer, will be going Ken, right after Fund IV expires?

That’s historically. Assuming we do it that way, that’s historically how it has worked. There is always, as other people have pointed out, you can roll forward or there is co investment opportunities, but to paraphrase my Brooklyn friend, we have 99 problems, but capital one of them. So we’ll be fine.

Okay. Got you. And then the other thing is on the structured financing portfolio, I mean you guys -- you paid off some of the pieces of the mortgage notes in the mezz debt in the quarter and then you have other maturity dates that appear to be near term too, I can’t tell exactly, I mean what happens with those, do we just keep paying those balances down, is that more or less what happens with these maturities?

So we have rotation in that portfolio and that’s nothing new. You should expect that we replace those dollars and in fact, maybe even increase those dollars. We’ve talked before about how our target for the structured finance portfolio is $100 million to $200 million. So it could be increased, but certainly I don’t think that it’s going to be a lot less than it is now.

Okay. So if something leads, kind of something comes in Jon, is that what you’re thinking?

Yeah. That’s right.

And our next question comes from the line of Jeremy Metz with UBS. Your line is now open.

Hey, guys. It’s Ross Nussbaum here with Jeremy. Ken, I’ve known you for quite a long time and I’ve never seen you dance this well around the funds question, because I think it’s been asked a couple of different ways and you’ve dodged it as well as a politician could, because it sounds like you’re not definitely committing that there is going to be a Fund V, and I guess the question is we’re four months away from the expiration of Fund IV, why the dancing around the definitive answer to what’s next?

So let me be 100% crystal clear, Ross. I’m not a politician. But that being said, and yes, we’ve known each other for a long time, we tend to make sure we’re keeping our options open and thinking through each of the components of what we do and then we’ll announce it at the appropriate time. Until it’s done, until we have everything signed and delivered, whether it’s the core acquisitions that we just announced or other things, I tend to try not to overpromise and then ever either under deliver or deviate. We take a lot of pride in. Here is what we’re going to do and doing it. So don’t read too much into it. If you look at how we have run our business over the last 15 plus years, then you probably have a pretty good sense to what we’re going to do, but you and I have had many conversations about as the company grows, how we might tweak it and fine tune it and et cetera and we take all of that into account as well. So stay tuned.

All right. It’s reasonable. I know what I would do, but let’s see if you agree.

And as long as not building a wall, fine, but I’m not a politician and I never will be.

Okay. The second question I have is along the, I think it’s page 46 of your PDF, it’s the development activity in your funds in the supplemental, and as I go through it, you’ve quite a few projects as I’m sure you know that are estimated to complete construction in 2016, yet, you’re showing lease rates, there is a whole bunch of dashes for a bunch of them and some lower numbers for others. Can you perhaps walk us through at least some of the bigger projects in the Fund III and IV development pipeline, what the leasing status is given that construction is complete?

So the only two Ross that I think you’re -- couple that you’re referring to. So within Fund IV, we have 210 Bowery and we have 61st Street which is of Madison. Those two are smaller buildings under 20,000 square feet. In the case of 210 Bowery, construction activities are still ongoing. Part of that is residential. The bottom floor is retail and we will lease that in the upcoming year or so, but that’s on track. And 61st Street, again, there, we’re working on the leasing and that will be in the next.

Both of those are somewhat binary in their -- for the non-residential component of the Bowery and then for 61st is they both will be leased to one tenant.

And then within Fund III, we have 3104 M Street in Broad Hollow Commons, Broad Hollow Commons, we’re going through the approval process at this point on leasing after that and again, 3104 M Street, small property, it’s 10,000 square feet. To Ken’s point, very binary. That lease will happen quickly when it happens and expectation would be in the next 12 months or so.

Got it. And just one accounting clarification, once these are complete, and you’ve got CFOs, are you going to be ceasing the capitalization of interest, G&A, et cetera or can you find a way to continue that until you’ve got tendency?

Yeah. So once it is complete, it comes online. Typically though, we’ll have a tenant and in paying rent at that point is certainly the expectation and intent, but to your point, once the property is available for occupancy and in service, then it comes online.

Okay. And that’s obviously reflected in your earnings?

Yeah.

And I’m showing no further questions at this time. I would now like to turn the call back over to Mr. Bernstein for closing remarks.

Great. Thanks everyone for joining us and we will speak to you next quarter.