Good day, ladies and gentlemen. Thank you for standing by and welcome to the Third Quarter Acadia Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to the speaker today, Jarette Seligman, Leasing Representative. Please go ahead, ma’am.

Good afternoon and thank you for joining us for the third quarter 2019 Acadia Realty Trust earnings conference call. My name is Jarette Seligman and I’m a Leasing Representative in our Leasing Department. 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 speaks only as of the date of this call, October 24, 2019, 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. Now, it is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today's management remarks.

Thanks, Jarette. Great job. Good afternoon, everybody. We had another solid quarter and made important progress with respect to both our existing portfolio as well as new investments. So, I would like to start with an overview of some of the current trends we're seeing, and then discuss the key drivers of growth for our business. Next, I'll turn the call over to John, who will discuss our quarterly results in more detail and our balance sheet metrics, and finally Amy will discuss our fund platform and the progress we've made on that front. First, in terms of macroeconomic trends and their potential impact on our business. Since our last quarterly call, there has been plenty of attention and concern around trade and around the slowdown in growth both in the global as well as the U.S. economy. From our perspective, while components of the U.S. economy seem to be decelerating, the job market and the consumer, they're still on solid footing. But almost irrespective of when we might think that the next recession could occur, we do think it’s prudent to proceed under the assumption that we are late cycle. And that means, at least for retail-focused companies like ours. First and foremost is to focus on growing cash flow rather than increasing our exposure to new development. Second, is to make sure that our leverage and our liquidity is where we want it not eventually, but today. And then, finally, it is to make sure that we have access to dry powder for new investment opportunities, whether they're arising today from the recent so-called retail Apocalypse or opportunities arising down the road. So with these factors in mind, here's how we think about the key drivers of growth for our business. First, in terms of our core portfolio,…

Thanks, Ken and good afternoon everyone. As outlined in our release, our third quarter results and key metrics came in strong and in line with our expectations. Before diving into the details of the quarter, I want to spend a moment to reaffirm a few key messages. Our core NOI which comprises the vast majority of our underlying NAV remains on track to grow in excess of 4% over $20 million of incremental NOI over the next several years. As we've discussed, this 4% growth consists of 3% embedded growth and other 1% from a handful of profitable redevelopments. Secondly, in terms of the cost to fund this growth, we remain on track to spend $80 million to $100 million inclusive of the redevelopment spend, as well as recurring CapEx and tenanting costs. And as of the third quarter, we have funded over 50% of these amounts, as we are nearing substantial completion of our two key redevelopments. And lastly, in terms of balance sheet strength. During the year, we have further strengthened our already rock solid balance sheet, raising approximately $140 million of equity to proactively fund our accretive acquisition pipeline, as well as increasing our liquidity through an additional $100 million of revolver capacity. By diving into the quarter and starting with same-store NOI. Our third quarter same-store NOI was in line with our expectations at 3.1% with our streets and urban portfolio, continuing to drive our results, growing 4.8% for the quarter or roughly 500 basis points over our suburban portfolio. Year-to-date, our same-store portfolio grew 4.1% with street and urban contributing 6.6% which is at the upper end of our initial range of 5% to 7% and suburban coming in around 1%. It is also worth pointing out that this growth is coming off a strong…

Thanks, John. Today I'll review the steady and important progress that we continue to make on our funds platforms, buy-fix-sell mandate. Beginning with acquisitions, through the third quarter of 2019, we completed approximately $320 million of acquisitions. This compares to approximately $150 million of Fund acquisition volume for all of 2018. During the third quarter, Fund V acquired a total of three properties for $142 million, of which $55 million was acquired in partnership with DLC. We considered two of the three properties to be the, quote “best game in town”. That is, we view these properties as top among a handful of competitive properties in their respective markets due to their strong positioning and tenant line-up. To that point, tenants at these properties include Ross Dress for Less, Best Buy, Dollar Tree, and Ulta. The third property is a well located Kmart anchored shopping center. Here the 95,000 square foot Kmart pays rent of less than $3 per square foot, which we've identified as an accretive value-add opportunity over the next few years. In the interim at our acquisition cap rate, the property continues to generate a strong leverage yield. As Ken mentioned, over the past few years, we have successfully aggregated an approximately $650 million 14 property portfolio on behalf of Fund V and we've done so at an unleveraged yield of approximately 8%. With leverage, we are currently clipping a high-teens yield on our invested equity. From a downside perspective, at this rate, we can have a zero cost basis in only six years. But more realistically, we are thinking about how much more quickly we can achieve our equity multiple goals, equity multiple goals, as the approximately 150 basis points of cap rate expansion that we've seen over the past few years for these types of…

Thank you. [Operator Instructions]. Our first question comes from Christy McElroy of Citi. Your line is now open.

Hey, good afternoon, everyone. John, I just wanted to reconcile some of the items that you discussed around expectations for same-store NOI growth. You talked about the occupancy runway and getting ultimately to 96%. You have the Uniqlo lease commencing and other leases executed, but you also talked about these high value street space recaptures next year. How should we be thinking about all of those moving parts in the context of same-store NOI growth, is the 3.5% to 4.5% that you've seen this year sustainable into 2020 or should we expect something closer to that 3% kind of longer term, embedded growth rate that you also talked about?

Yes, Christy, and I think you sort of highlighted that there are a lot of moving pieces. And I think we will, as we always do, give more definitive guidance in February, but I think we reaffirm that the 4%, which is 3% same-store through the next several years is intact, but until we have some certainty around the moving pieces, I guess it's a little bit too early at this point to give anything firm.

Okay. Just on the Uniqlo lease, can you talk about the P&L impact there in the context of sort of the timing around when they took the space, and when the rent commences and how that impacted -- how that’s impacted straight line rent versus the timing of when that starts to get booked as cash rent. So, when they sort of took over the space versus when they actually start paying rent?

Yes. So, I think for GAAP purposes, we, when we turn over a second-generation space, where we're not doing significant work, we will start straight lining as of the turnover day, which began this quarter. So, there's a few hundred thousand dollars of straight-line adjustments related to Uniqlo, but given that their rent doesn’t commence until they open, that’s going to be in late Q4 that it will start showing and be reflected in our same-store results.

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

Thank you. I was wondering if you could give me the total square foot of the five contiguous storefronts on Melrose Place.

As soon as we close, Craig, we will give more detail, and we're pretty close to getting this closed and we have a firm contract. But there's a lot we want to talk about there as soon as that happens.

Okay. And then maybe this might limit this as well. But, I was wondering if maybe you could contrast the street and urban market in LA versus let's say on New York or San Francisco, and how you want to take advantage of that?

Sure. And each market is different. But all of the markets, the first stop is conversations with our retailers. Where do you want to be, what’s working, what’s affordable, what’s profitable, how do you think about your businesses? And so, while it's certainly different on Armitage Avenue than on Greene Street, and certainly different in Union Square, San Francisco versus in LA and on Melrose Place, here's what our retailers have been telling us, you have a three block stretch that's really quite unique for them where combination of Social Media and Instagrammable moments ,but also for these retailers to drive their omnichannel sales, it is at the epicenter of it. So, whether it's Glossier or The Row, they're looking at these streets as being powerful above and beyond the fact that they are profitable on a rent to sales basis, which they are. They are affordable relative to other alternatives, which they are. But because they are unique, because especially in LA, where the shopping experiences are very different, let's say than strolling in Soho, this is providing what our retailers telling us is a unique opportunity for them to really get their brand out there in a positive way where they can drive both four wall EBITDA, but then as importantly omnichannel. And you're going to see that continue because it is such a unique stretch. And then from our perspective, and we've been pretty clear about this, we want to own clusters where we can connect the dots where we can control enough different spaces because already in conversations with retailers, some want to expand, others want to consider other alternatives. In Armitage, we're going through this right now in a positive way. So, where we can move tenants around, where we own enough continuous or near spaces, that has been a proven success for us. And so we think about the different markets in the United States when we sit down with retailers and ask them, where are they excited? And that's what leads us there first and foremost. And then secondly, because -- just because retailers want to be there, and just because we like the location, we need realistic sellers. If we don't see realistic sellers, there's nothing we can do. So, we have a situation here where we think there's long-term value-add opportunities. We have a seller that we have enjoyed doing business with. So, we're looking forward to it.

Thank you. And our next question comes from Todd Thomas of KeyBanc Capital Markets. Your line is now open.

Hi, thanks. Just first question, in terms of operations here. So John, the Forever21 that you discussed, you said there was a 30-basis-point impact in the quarter and the annual impact is expected to be roughly 100 basis points, but you haven't recaptured that space yet. So what was the 30 basis points attributable to specifically in the quarter and is the rent and NOI run rate already accounting for downtime or the recapture of that space?

Yes, so Todd the prepetition bankruptcy rents or would have been September's rent wasn't paid. So that is why we put a full reserve on the one month, so rent recoveries and the open receivables, so that's one month of the third quarter.

Okay, got it. And -- and then, so a couple of questions on investments here. So first, we've seen the pace of investments pick up some particularly in the core. And I'm just wondering if we should expect to see investment activity accelerate further as we think about 2020 just based on what's in the pipeline and then curious whether you're seeing some larger portfolios come to market as seller expectations seem to have reset some -- maybe something a little more sizable than what you've seen this year so far in Soho and in LA now, or should we still be mostly thinking about smaller one-offs and some small portfolios or collections of assets like this.

So, it's a great question Todd. And the short answer is, I don't know. And so people ought not read too much into what I'm about to say, because the last time I talked about a pathway to growth that was both aspirational and I would argue observational meaning when I look around now and I see who is active and who is not, who sidelines in terms of specially of high quality street and urban assets. We feel really good about our position both in terms of what we understand our dialogue with the retailers, where we can pick locations that seem to over the next one, three, five, 10 plus years work. There is not a lot of bidding competition and there are more and more larger portfolios coming to market. And to your point, sellers I think are, not all of them, but sellers are beginning to become more realistic. So, there is nothing that would cause me to think that we couldn't see more investment activity in it ramp up, but the reality is we don't have to do any deals in order to drive strong internal growth, in order to drive strong core growth. So, if sellers change their minds, if there are shifts in the economy that caused us to pause shifts in the stock market that caused us to pause, we'll pause. But right now, I like what we're seeing and we're still in the early stages of the shakeout of the haves and have-nots, so . So as more and more clarity comes in, as retailers become more adamant that they're rethinking their business models, and you're seeing this not just from digitally natives but from iconic brands saying, you know what, we're going to reduce the amount we're selling through the wholesale channel. We'll try to grow DTC, but while we do grow direct to consumer, we need to acknowledge that stores are an important piece of the way we do business. Well, when we hear retailers talking like that, when we say, where do you want to be? And to the extent we can get our foot in the door on those type of acquisitions, especially where we can own multiple buildings, that makes sense for us. You've seen on the small side, we can have one or two buildings on any given street that we're already active in and we're a small enough, nimble enough company we can do that well. As we think about larger portfolio transactions, there needs to be concentration and they need to make sense or we won't do them. But as I started this conversation, one, I don't know, two, but when I look around, I like how we're positioned in terms of the lack of competition. There is still plenty of competition out there, but it's much different than it used to be and that makes us pretty excited.

Okay, that's helpful. And what about in Fund V with the high yielding investment strategy there so you noted the spread between unlevered returns and borrowing costs being extremely attractive. Are you starting to see cap rates compress a little bit on that product. As it sounds like you might be underwriting or anticipating based on your comments, and is the competition changing at all for those assets given the decline in borrowing costs.

Yes. So I keep waiting for that and there is a somewhat schizophrenia world we live in, where we're waiting. Could cap rates go up when you talk to some people, could they go down when you talk to others? So to be clear, and so everyone understands this spread is primarily in non-supermarket anchored shopping centers. There still a lot of muscle memory around supermarket anchored shopping centers. It's not that we don't like them, but even John hinted at this earlier in his prepared remarks, there’s a lot of disruption in the supermarket space, that may or may not be priced into the amount of redevelopment that has to occur. But for non-supermarket anchored centers so far, we are seeing decent deal flow. There’s competition, but not nearly as much as there used to be because institutional investors are still, for the most part on the sidelines. What I do expect to change is the type of seller primarily over the last couple of years it has been public companies selling assets and I think appropriately so deleverage them. It seems to me based on a bunch of recent data plus how stocks have trade and that many of them are saying mission accomplished on their side and great. What we are now seeing is other institutions saying it is time given the life of those funds or is there in core funds for them to try to monetize? And I'm not seeing enough new institutional private capital jumping into sync that those spreads compress. But do keep in mind, I think we're in a win-win position. So if interest rates stay low and cap rates compress a little bit, we can still achieve our returns because we didn't underwrite 3.7% blended interest rate. We underwrote higher. If cap rates compress a lot, I think, Amy, hinted at, we have no problem in our buy-fix-sell model monetizing. So we just have to be nimble enough that if the markets continue, we'll continue to add. That is my guess is my base case for the next year or two. But if we see a shift, if we see a return in terms of institutional capital coming back into this stable low growth, but stable retail environment, great. We know how to monetize and how to create shareholder value around that.

Thank you. And the next question comes from Vince Tibone of Green Street Advisors. Your line is now open.

Hey, good morning. So Los Angeles is a new market for Acadia. I'm just curious, if you're actively looking to gain further scale there and if so, would it be likely concentrated in the Melrose area or are there other streets or submarkets in LA that you find interesting?

So Vince, we don't add new markets casually and we'd spent months, it’s not years, watching the different markets to see where can we get the right combination of scale, adequate barriers to entry, strong retailer demand, and LA is a disperse to call it one market to even pretend that it's anything like San Francisco or New York in terms of that level of dispersion, it's very different. So we would welcome the opportunities if we see them. You could run through your list right now of where are the key streets that we want to be active in. And then the question is do we have enough realistic sellers where we can aggregate enough of a portfolio on a given promenade to say we can make a difference. And if the answer is no and it's just too disperse and it's still going through too much headwind, we'll probably hold off on that location until we see it turning the corner. And there may other be other areas that are great to go out to dinner that are really hip. But again, we don't think we can add enough building there or we may wait until we see a larger opportunity. But there are probably three to five different markets in LA, each of them separate that excite different retailers’ different way. If we can see the right entry point, I see no reason for us to not add, but we are patient and discipline. So for now, I would expect to see us stay focused on Melrose Place. Let's prove that out and then we'll see what shows up next.

I mean that makes sense. So kind of on that point, it seems like other new markets seem pretty unlikely in the near-term then, I mean, is it fair to say that growth will be – no, external growth will probably be concentrated more in your core markets and now possibly Los Angeles.

We on a ratio of 10 to 1, our acquisition investment and leasing team spends time on those markets that we're currently active in. So we do not feel like we need to go add a new market a quarter, a month, or even a year. We have great concentration down in DC. We're beginning finally to build concentration in New York City. Boston, Chicago, San Francisco, now LA. We could debate online or offline where the next place should be. But I would expect our team to be spending 90% of their time and effort on the existing market because that's what we're going to know best. And frankly, other than maybe one or two other markets where retailers are saying those are must-have locations. The ones we've are in are the key gateway must-have locations for retailers looking to express their brand to the consumer in a unique way that compliments their omnichannel channel strategies.

Thank you. And our next question comes from Floris van Dijkum from Compass Point. Your line is now open.

Great. Thanks guys. Quick question on the return expectations, you’ve talked about for your funds needing 8%, unlevered returns, presumably for the core it's the same level or if not a little bit higher. And the composition of returns obviously is both income and growth. As you think about your acquisition on Melrose Place, how does the composition between income and growth compare to your New York assets and your overall portfolio?

Sure. So let me talk Floris about our $180 million of core acquisitions here to-date and be a little more vague about building-by-building or even Melrose versus Soho, et cetera. And you are absolutely right. And that the way we think about the world is there is assets you can buy and an unlevered eight and then there's assets that you buy at a lower yield well and the unlevered eight having what we anticipate to be very limited yield growth. Meaning there may be rent growth as tenants turn, but you have to spend money. So you started at an eight and it grows to an eight and our goal is making sure we don't buy eights that grow to fours. And then on the longer-dated core assets, we've been pretty clear what we're looking for is plus or minus 4% compounded annual growth through a combination of contractual leases. These leases contractually tend to be about 3%. Sometimes they're too, sometimes they're higher, but 3% is probably a pretty good number. And then we are looking for certain upticks along the way. Although we are very sober about the realities of the marketplace right now. So we do not believe trees are going to grow to the sky there but if you use 4%. Then what I would tell you is, and again we have a few moving pieces on $180 million of acquisitions this year before we even get them closed. But with a few moving pieces, John said on the last call and it still remains the case, we expect to be pretty darn close to a 5% yield going in. And then we expect that 3% to 4% growth can't tell you which quarter 3% becomes 4%, but we feel pretty good after we have seen rents in some markets decline and some cases precipitously, we feel pretty good that there will be a rebound. Now, whether the rebound is a rent increasing periodically at 10%, which will be great, or an unhealthy 20% or 30% which was what was occurring in the 2010 to 2015 period, which we are not wishing for. But if there's some form of rebound, we think there will be asymmetrical upside such that the returns we get in the core reward us for not getting current yield at eight day one reward us for a, I think more interesting, more robust long-term ownership as retailers continue to shrink their footprint, do more with less. But it's also a longer-dated investment where we're not sitting there levering it two to one. We're not worried about what the exit cap might be in two years. So hopefully that, I guess that's a long way of saying eight plus zero or five plus three or four get you to similar returns.

Fair enough. And so -- we should think about it. So, maybe five-ish initial return and then growing over time is that the right way to think about it?

With the following huge caveat there's a bunch of assets that trade well below that going in, and we have to recognize that and that given how low global interest rates are for these markets, don't be surprised when you see very low cap rate trades elsewhere. We acknowledge that. We don't chase it, but we acknowledge it. But where we can find the right portfolios, the right assets that meet those needs, the answer is, yes.

Fair enough. If so the - let me just, so if we see those lower yields, so presumably we have to assume that the growth will be higher to get to your 8% plus return that means that potentially you're looking at, 4.5% return over time.

Well let me be clear in case I wasn’t. When you see those transactions with very low yields printed, the first thing you should assume is we're not the acquirer. But there's been a few transactions on Fifth Avenue, I think that have just been incredible in terms of how low the mark-to-market effective yield is. We're not the acquirers of this. And sellers like to point to them and say, well, why can't you compete with that sovereign wealth fund and buy at a 3.5. We can't, we won't. In the core, our focus is not chasing liquid markets. It's great to know that there's liquidity there as a backstop in terms of the capital markets. Our focus is to chase where retailers want to be and where we stand a fighting chance of seeing exceptional rental growth. And because we're going to own them in the long run, if we can acquire at the yields, I just discussed. If it's lower, yes, you're right, if going in yield is lower than that you should expect us to be able to realize upon higher rental growth than I just discussed, but I was referring in lower yields primarily to some transactions that have made the papers at cap rates that we can't compete with.

Fair enough. One follow-up question on City Points and the expected stabilization, are you getting closer to having that asset be stabilized and have all of the ground floor retail be leased or when do you expect that to happen?

So the short answer is yes, we're getting closer and but we're nowhere near as close as I would like to do be. The great news is historically the challenge in urban mixed use retail has always been what do you do with the upper levels? And what do you do with your basement? And in that case, we are fully stabilized and frankly the retailers are crushing it between Alamo Drafthouse, Target, DeKalb Market, Trader Joe's, so we solved the hard part, what we haven't not been able to solve for is the realities that we're still in a construction zone. That's the part that's going to be incredible across the street, but is beyond our control is still at least a year away. That the tallest tower today in Downtown Brooklyn is adjacent to us and they're topped off, but they still have some more work to do. So it still feels more construction like and then the street it will down the road. That -- once that tower is complete, there's another tower block away that will then be the tallest tower in Brooklyn probably for a long time. So I don't want to predict when all of this gets done. But what is becoming clearer to us as we look around is that we are at the epicenter of a pretty exciting area in terms of mass transit, in terms of sales that Alamos doing, Trader Joe's doing et cetera and then we just need to as aggressively as we can, but we need to be sober about how long it's going to take. We need to get this ground floor leased up. Our focus here would be, I don't want to leave money on the table. We work too long too hard for this. So predicting or telling you that next year all these rents will be at full market, I think is unlikely. I think it's a multi-year task, but we're up to it.

Thank you. And our next question comes from Hong Zhang of JPMorgan. Your line is now open.

Yes, hi guys. Just last quarter, you talked about how you're benefiting from a lower than expected current loss reserve. Is that still the case? I guess it sounds like next year the credit loss will be higher, is that fair to state?

Hi Hong. So yes, I would say in terms of where we were for the quarter, I'd say we were with the exception of the Forever 21 we were a little higher by the 30 basis points that that we took this quarter. In terms of next year, I think it’s a bit early, but I think we always start the year somewhere between thinking about to 100, 150 basis points. So I'll definitely have a better view on that as we get up to our next call.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Ken Bernstein for any closing remarks.

Thanks, everyone. I look forward to speaking to you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.