Good afternoon, and thank you for joining us for the Fourth Quarter 2019 Acadia Realty Trust Earnings Conference Call. My name is Brandon Clark, and I’m an analyst in our acquisitions 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, February 13, 2020, 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’ll begin today’s management remarks.

Thanks, Brandon. Good afternoon. We had another solid quarter. But before we drill into last quarter’s results, I’d like to start with a review of some of the trends that we are seeing and how we have been positioning Acadia to capitalize on them. After that, Amy will discuss our fund platform and our progress on that front. And then finally, John will discuss our quarterly results, our balance sheet metrics and our forecast for 2020. First, and looking back on 2019, the year played out consistently with what we previously described as a bumpy bottom for retail real estate, meaning that while not ignoring the continued headwinds by most measures, leasing demand and tenant performance was better in 2019 than it was in the prior two years. And so far this year, we see that trend continuing. But we call it bumpy, because we are still working through a slower than desirable, separation of the haves and have-nots amongst both retailers as well as retail real estate. Fortunately, as we begin to cut through the fog of the last few years, we can see with increased clarity how the recovery from this highly disruptive period is playing out. Now, this does not ignore the impact of e-commerce or other headwinds. But it is becoming increasingly clear that almost all types of retailers are recognizing the importance of the physical store. And last year, we saw the following positive drivers begin to take form. First of all, there is still no simple one size fits all answer for what is the formula for a successful 21st century retailer. But thankfully, there are a variety of formats that are succeeding. On one end of the spectrum, retailers ranging from TJX to Trader Joe’s, both of who are significant tenants in our…

Thanks, Ken. Today, I’ll review the steady and important progress that we continue to make on our Fund platforms buy-fix-sell mandate. Beginning with acquisition. During 2019, we completed approximately $320 million of acquisitions. Over the past few years, we’ve successfully aggregated an approximately $650 million portfolio of open air suburban shopping centers on behalf of Fund V, and we’ve done so at an unleveraged yield of approximately 8%. With two-thirds leverage at a blended all-in interest rate of 3.7%, we are currently clipping a high-teens yield on our invested equity. This 14 property portfolio has strong geographic diversity. Based on invested equity, 39% is in the Northeast, 26% is in the South, 12% is in the Midwest. These are primarily non supermarket-anchored properties and top tenants include the TJX companies, Ross Dress for Less, Best Buy and Walmart. As previously discussed, cash flow stability is key to our strategy. To that point, we’re pleased to report that these carefully selected assets continue to perform consistent with our underwritten expectations. Turning now to dispositions. During 2019, we completed approximately $100 million of dispositions. This compares to approximately $75 million of Fund disposition volume in 2018. Looking ahead, we continue to actively assess our portfolio for monetization opportunities. Finally, with respect to existing investments. Strong leasing velocity continues at City Point, our urban retail property in Downtown Brooklyn. During 2019, we executed leases for more than 60,000 square feet of space, and looking ahead, we have a healthy pipeline. Our 2019 activity included an expansion of Alamo Drafthouse, which is already one of the most productive movie theaters per screen in the country. Almo leased another 25,000 square feet at City Point, which will enable it to respond to strong demand for moviegoers by doubling its screen count and adding a second kitchen. During 2019, we also executed an 18,000 square foot lease with NYU Dental on the fourth and fifth floors. And on the ground floor, we were pleased to welcome Camp, a family experience store and Casper, both now open. Looking ahead, McNally Jackson, a longstanding New York City-based independent bookstore, is planning to open on Prince Street this month, and we are accelerating leasing discussions with other leading national brands for Prince Street space. Overall, as it relates to this final lease-up, we have remained patient and selective, focused on merchandise mix and retailers’ ability to deliver strong sales volume at the successful project. After all, our concourse level is already delivering sales of approximately $100 million. City Point benefits from its strong location at the epicenter of growth in Downtown Brooklyn and its critical mass of compelling food, entertainment and soft goods juices, which continue to drive strong foot traffic and anchor sales. In conclusion, we had another productive quarter in our Fund platform, as we continue to execute on our opportunistic and value-add investment strategy, monetize our stabilized properties and create value within our existing Fund portfolio. Now, I’ll turn the call over to John.

Thank you, Amy, and good afternoon. I will begin with an overview of the quarter, followed by a discussion on our 2020 guidance, and then closing with an update on our balance sheet. Starting with same-store NOI. Same-store NOI grew 3.9% for the year and 3.1% during the fourth quarter. It’s worth highlighting that our current quarter’s growth is being driven off a strong fourth quarter 2018 comp, which was in excess of 4%. Our street and urban portfolio continued to drive our same-store results with growth of approximately 6% in 2019 and 1% coming from our suburban portfolio. As a reminder, our street and urban portfolio comprises over 70% of our underlying core net asset value. As outlined in our release, we are guiding towards 1.5% to 2.5% of same-store NOI growth in 2020. Now before diving into some of the details for 2020, I want to reiterate that our Core portfolio remains on track to produce long-term growth in excess of 4%, inclusive of a 1% contribution from redevelopments over the next several years. Now in terms of 2020, incorporated into our guidance includes the previously discussed expiration of a handful of street leases, along with the anticipated impact from a couple of known tenant exposures, namely Forever 21 and Pier 1. The combined aggregate impact of our street rollover and known tenant exposure – exposures is estimated to be at 150 to 200 basis point range on our 2020 same-store NOI expectations. Starting with the expiring street leases. As we have discussed on our prior call, upon the natural expiration of the leases, we recently got back a few of our best street locations, including spaces on Rush & Walton in Chicago, Mercer Street in SoHo and Greenwich Avenue in Greenwich, Connecticut. Consistent with Ken’s remarks on…

Thank you. [Operator Instructions] Our first question comes from the line of Craig Schmidt of Bank of America. Your line is open.

Thank you. I was wondering who you’re competing with, regarding your acquisitions where you get the collection of contiguous high street assets?

It’s interesting, Craig, because there’s no specific one group that shows up consistently. There’s a couple of private funds that have been set up to do this. One of them, Asana group, for instance, is continuing to acquire, although as often as not, we’re finding them not. Where we are in the specific time and date, they were the ones who cast us out of our transaction, you may recall in the West loop of Chicago, where we had a preferred position. So they are a very good and capable group. But in general, our biggest competition right now for these great assets is simply getting sellers to understand the reality of where rents are today and thus, where pricing is. What we have found is, when we – when sellers are realistic and cognizant of what’s going on, then we’re in a uniquely good position, because there is much less capital formation today for these kind of assets than in the last five, 10, 15 years.

Great. And then on the DTC, the direct-to-consumers, how big of a trend do you see this being? And how successful have these vendors been in terms of opening their own store and operating them profitably?

So I’ll start with a question to you. How bullish are you about the rebound of the department store? Okay. I’ll take that as a non-answer and I won’t answer it either. But one component of this is coming just from the reality that until that channel rebounds, the best way for so many brands to connect with their consumer on a cost-effective basis, where they have a lower-cost per acquisition of that customer, higher repeat sales and, frankly, higher profit margin, that they’re recognizing that they have to be good at retailing. It’s not easy. It’s a tough business, not everyone will succeed, but we are seeing increased demand from that side of DTC. The other side of direct-to-consumer is the digitally native, where you have now seen enough headlines over the last year, that if you do not have a pathway to profitability, in a relatively short period of time, and that is really hard to grow your business online only. One, the cost per acquisition of customers is going up, not down; two, the profit rate for that pure online sale is very low and difficult and the business is hard to scale. And then when those DTC tenants show up and we talked about that on Armitage Avenue, they are seeing four wall profitability. They are also seeing what we refer to as the halo effect, which is that their online sales go up and it kind of makes sense, because you get to try something on when you go into Alberts, and whether you buy it in that store or online, they don’t really care. And it makes returns easier and it increases the customers’ connection with the brand. So we’re seeing all of that growth. Now that being said, I should temper everyone’s expectation, none of these brands are articulating to us that they are going to replicate the thousand store fleet of years past. So we’re having to be very selective about which corridors do we see this working. I give our team a lot of credit for making sure we are in front of all of these brands and understanding who is going to succeed and who may not that we’re structuring these leases carefully and that we’re prepared for the appropriate level of turnover that comes with this trend. So do not expect this component of our business to compete with the revenues we’re collecting from Target. But do expect to see a level of excitement on those corridors, a level of rental growth. And then I think, over a long time – a longer period of time, you’re going to see this resonate in a permanent way.

Thank you.

Sure.

Thank you. Our next question comes from Floris Van Dijkum of Compass Point. Your line is open.

Right. Thanks for taking my question, guys. I had a couple of questions. Number one, John, maybe if you could walk us through you talk about your Pier 1 and Forever 21 impact and some of the total reserves that you’re taking up 150 to 200 basis point impact on your same-store for 2020. How much of that is bad debt reserve versus no tenants leaving?

Thanks, Floris. So I would say, first, starting with Forever 21, that we actually recaptured right at the end of the year. So Forever 21 is not in our bad debt reserve. We, in fact, have it back and that’s fully out. In terms of Pier 1, going back to what I said on the call, our guidance assumes that we’re getting, so we have four spaces. We assume we get all of that back. And the assumption is we get that back early in the year. What I can tell you is that right before the call, confirm that Pier 1 paid. I can’t confirm the check cash, but I could confirm they did pay February rent. But we do have them coming out at early in the year. So what we did, given that we haven’t got the spaces back, not entirely sure when we’ll get them back other than we’re assuming we do. We built in, what I mentioned on the call, 150 to 200 basis points sort of reserve into our same-store for the expected recapture for that, which is inclusive of the street roll over that we’ve had as well is baked into that. So then getting back to your question on reserve. So Pier 1 is out, call it, in the beginning of the year. So without giving you the exact month, it’s effectively out. And on top of that, we’ve put a 1% reserve in our credit, which is consistent with what we had last year.

Great. Another question, maybe the wide range in guidance, I guess, is largely due to the activity in the Fund platform and there’s a pretty wide range. And John or Amy, maybe is that dependent on a number of transactions happening, or is it also the size of transactions that you’re looking at that could vary?

Yes to both, right? So I think we’re still early in the year and don’t want to go through the specific deals of what and when it could unwind other than we just highlighted that expected to happen in the latter-half of the year, but it’s a number of potential things, Floris, that we think could show up as they do each year.

Okay. But could you walk us through maybe the Pacesetter transaction, I believe you sold the asset, but provided a loan to the buyer as well?

Sure. So this one is one of the – you may recall in the third quarter call, we had two grocers that we were – we had the ability to re-tenant in and we did have them re-tenanted. The grocer on the Pacesetter asset came with an investor group and wished to purchase the asset and at an incredibly attractive price that, as we put on our release, we were able to accretively reinvest that. And as part of that, they gave a very secure first financing that doesn’t go out very far to accommodate. They had a 10 31 [ph] money that they had to put to work. So short-term financing that we bridge to get their permanent financing.

Got it. So the expectation is that’s going to get paid up pretty quickly, if I recall?

Yes.

Okay. Maybe one last question for me. Rents, you talk about Armitage clearly, where you’re seeing rental growth already. Would you call rents bottoming out in SoHo? And then maybe you could touch upon some of the other New York markets that tend to get a little bit more pressed like Fifth Avenue or Times Square, where do you see rents bottoming out? Have we reached that stage yet? And maybe if there’s some particular evidence you can talk about in SoHo about why you feel so confident about that market?

Sure. And it’s building by building street by street and I’m less comfortable talking about other people’s assets than our own. With the following caveat, asking rents are a very peculiar animal, especially on streets, because people can ask whatever they want and asking rents very well may still decline for a significant period of time, because we’ve seen a meaningful decline in execution rents, 22% as much as 50%, but that doesn’t require a landlord to reduce its asking rents. So don’t be surprised to see asking rents continue to decline. What we are seeing in our portfolio on the streets that we’re active in SoHo, specifically as opposed to a year or 24 months ago, tenants are showing up. While they’re all certainly focused on where rents are that’s frankly, just one piece of an overall puzzle of why do they want to open a store, what’s the cost of opening a store, how mission-critical is it. And what we’re hearing from tenants throughout the country and throughout the world is now that rents have reset in SoHo. It’s one of those markets where they can present themselves to their customer in a unique way. There are a lot of other choices and you could think in New York City alone, you could say, well, what about here and what about there and I’m not going to mention those, but needless to say, Time Square is a much different shopping experience than SoHo. Time Square is providing significant marketing importance to a variety of retailers. We’re not currently invested there. So I won’t comment on where those rents are relative to market. But specifically, SoHo, we are seeing that rebound in and that’s why we have been adding there.

Great. Thanks, guys.

Sure.

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

Hey, good morning. I’m just curious of how much you’re looking to grow the Structured Financing portfolio over the next, let’s say, a year or two? Or is this something you’re considering more seriously now than maybe over the last few years, or is this the current deal more of a one-off? How do you just weigh that business as a source of funds or use of funds rather compared to core acquisitions?

Yes. So what we have said in the past and continues to be the case is our – that component of our book has been reduced pretty significantly over the last several years, somewhat because of where rates have gone, but also because we never want it to be more than 10% of our overall growth asset value and now it’s considerably less. We have been paid back successfully on a bunch of deals. And it’s situational events, meaning, if there’s the right opportunity, we will pursue it, especially if it’s an asset that we think is long-term, consistent with something that we’d be prepared to own if the opportunity arose. That being said, this latest deal, we will make a high single-digit and under circumstances low double-digit IRR. We’re very safe in the capital stack and on a risk-adjusted basis. We said, you know what, that’s probably a pretty good place to put some dollars over the next several years. It is not something that we’re going to do or grow significantly or I don’t anticipate in assets that we’re not passionate about.

Got it. It makes sense. And then next question is just on the acquisition on Prince & Broadway. Just curious how did you – how you underwrote the tenant risk there, given the space is currently leased to Pink. There’s some uncertainty with that retailer. Are you expecting to get that space back? Is that how you underwrote the building?

Absolutely. They have a few years left and we would be happy to take it back sooner. Indications are that, that won’t be the case. So we have plenty of lead time, but we look forward to getting that space back and re-tenanting it. If through the transactions that occur, they become more aggressive, more passionate than we certainly would be happy to talk to them as well.

Interesting. All right. Thank you.

Sure.

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

Hi, thanks. John, first question I have is on the same-store growth and the same-store pool. And the guidance implies growth in core property NOI of about 1.5%, 1.6%, but the same-store NOI growth forecast to 1.5% to 2.5%. I appreciate the clarification about the 150 to 200 basis point same-store reserve. But can you help us understand what assets are maybe moving in and out of the same-store pool for the year, either for redevelopment purposes or otherwise, as you’ve taken back some spaces and recaptured some space?

Yes. No, absolutely pathetic. The first one would be, if you look in our supplemental, and this is one we had mentioned last quarter, we had Acme on our Elmwood Park property. So that one, we’ve taken that back, we will be demolishing. The former Acme space as we transition that to legal and additional expansions beyond that. So that one is out of the pool and in redevelopment. Forever 21, as I mentioned on the call, we are at this point, still evaluating what is the most profitable real estate deal for us. So to the extent, we do a demolition of that and we would put that into the redevelopment pool, so that’s one that we will give more clarity as we have it. So that is a possibility that that could be in there. And then on the Pier 1s, we haven’t gotten the space back yet, so we can’t definitively make a call. But there’s a handful of those that would be redeveloped possibilities, including one we have in Lincoln Park that we would actively look to redevelop. So we’ll keep – we’ll provide more clarity as we have it.

Okay, got it. But as it stands today, the 1.5% to 2.5%, so that includes Forever 21 being taken back and Pier 1 is still in that range as well?

Yes. So I think Forever 21, we do have it back, right? So I think there, as I mentioned in my notes, it will be an as is lease-up, which would have a few months of downtime or it would be redevelopment and we will update you for certain on the first quarter call.

Okay, okay. And then, Ken, in terms of core acquisitions. So your cost of capital has risen a little bit here in recent months. And I understand you don’t have anything…

Thanks for reminding me.

I understand you don’t have anything embedded in the guidance for the core. I’m assuming that you’re in the market having discussions with sellers and brokers. How quickly are you able to turn on and off those discussions and does that impact your ability in the long run to win deals and source investments, just given the sensitivity that you have to your stock price?

Yes. So the short answer and there’s always a balance. If my acquisition team spent every hour looking at the stock price, they’d never get a deal done. And generally, these deals take a long period of time, where stock can move considerably during a negotiation period. So given our historic track record of match funding, given our historic track record of making sure that our acquisitions are: one, NAV accretive; two, generally FFO accretive, and three, consistent with our long-term focus, I don’t intend ever to abandon that and say what the heck we’re just going to lever up. That being said, as John alluded to in the prepared remarks, we have other sources of capital coming back in. We have capacity within our balance sheet, so that if something was compelling today, even though I would not issue stock at today’s level, we certainly can consider it. That being said, so the stars have to align in order for us to do a core acquisition. You need to check the boxes I just said. But I would still argue today, the biggest challenge is finding realistic sellers. When we find realistic sellers, one way or another, we find a way to get these deals done. We have very good, strong institutional relationships with capital. We obviously have our Funds business. So my biggest concern is not our cost of capital, although that is certainly a focus, it is still making sure we find the right deals, the right realistic sellers. And when we do, we have historically found a way to get those deals done.

Is there another equity source of capital, perhaps an institutional investor or otherwise that you would consider looking to bring in to help with core investments just to help mitigate some of the volatility?

Yes, yes. We have done that successfully with our funds, and we certainly would consider it otherwise. It is a very bizarre time, where you have risk-free returns as low as they are right now, capital surrounding a whole bunch of other areas of real estate. And retail still remember, it still is a dirty word. So there is capital starting to form. But frankly, it’s still more on the sidelines than not, several institutions have reached out and would welcome the opportunity to partner with us, if that’s the most accretive way of getting deals done. I can tell you with confidence, we have not walked away from a deal recently over stock price, it’s again, just a matter of educating sellers as to where the reality of the private market is today. And I’m confident we can compete successfully with the private market when those opportunities arise.

Okay. Got it. And just one more for John or maybe Amy as well. The $0.06 to $0.10 of net promote and other transactional income that that’s embedded in the guidance, can you talk about the level of fund dispositions that are embedded in that assumption? And then I know that there’s a debt maturity at City Point in a few months, $200 million, it’s $53 million at Acadia share. Is there any fee or transactional income associated with a potential refi or recap of that asset that’s included?

No, there’s no fee associated with that embedded in our guidance, Todd. So no. And I think in terms of dispositions, I mean, it could just vary widely. And as we have historically done, we’ve just not provided disposition guidance in our – when we put this out. So just don’t have not put that up.

We need to leave something for you to guess about, Todd.

All right. Sounds good. Thank you.

Thank you. Our next question comes from [Melinda Sigh] [ph] of Jefferies. Your line is open.

Hi, How do you feel about 70% of your NAV being street and urban portfolio? Do you think this would be subject to change materially over time, given the disruption you’re seeing in retail and across different markets?

So what we have found is that over any extended period of time, where we can own the right supply constrained assets in the right markets, street and urban, especially so that they have provided for us about 200 basis points of superior NOI growth. But you’ve got to time it right, so that you’re not buying top of market rents and that you’re also not overpaying from a cap rate perspective. So with those caveats in mind, where we can add street and urban retail. What our tenants are telling us, what we’re seeing in general is that’s where we will, for our core portfolio, be able to deliver the highest risk-adjusted returns. That being said, that meant a few years ago just navigating around a lot of volatility. And thankfully, we did that successfully. And I mentioned in the prepared remarks, over an extended period of time, we have seen outperformance by street and urban. And then when we think about going forward, the same applies, but we have to be patient, we have to be careful. We have to be disciplined. My guess is, you will see, as you did over the last couple of years that 70% continues to grow, even if we don’t do something with our suburban. But there’s also a chance it could grow over the next several years by somehow monetizing our suburban, whether it would be in conjunction with also, as we discussed, our Fund V assets. But the demand for yield in the capital markets is strong and one way or another, we’ll figure out how to monetize it. That’s a long answer to expect us to continue to add street and urban assets on a disciplined basis and then just the law of denominator, et cetera, will increase that, but it could also be more substantial.

Thanks for that. And then what kind of rent bumps are written in the leases for the street and urban portfolio? Did this change at all with the vintage of leases that were signed in 2019 versus prior years?

A little bit less so. So in general, if you had to pick one number, it would be 3%. That’s not to say that certain retailers, especially as you’re talking about larger format, more also suburban retailers, that’s not to say that those rent bumps with the TJX or Target would be 3%, they will be lower. But for the most part, 3%. The biggest change, and I would argue it’s landlord and tenants’ favorite, is the lease terms have shrunk. I don’t mind a shorter initial lease term, as long as there’s not a series of perpetual options with low growth. The state-of-the-art today is shorter lease term on the initial term and then the option to renew by the tenant tends to be fair market value or something closer to that. So shorter lease term, but if these tenants succeed and then after three, five, seven years, they had a reset to fair market value and that works quite fine for us as well.

Thanks.

Thank you. Our next question comes from Christy McElroy of Citigroup. Your question please.

Thanks. Good afternoon. Correct me if I’m wrong, I’m not sure if I heard this right. Did you say that Forever 21 is out of the same-store pool, but Pier 1 is in the same-store pool?

Yes. So what on Forever 21, Christy, what – that one we have the asset, that we have the property back. So as of 12/31, it was in the pool all of 2019. And in Q1, we will have a definitive decision whether or not it’s in or out of the pool. Reason being is we’re looking at a number of alternatives, whether we lease as is and then have a little bit of downtime or do we effectively demolish the building. And again, we’re going to look at that from what’s the right thing for the real estate. At which point, we’ll be out of the pool. So have yet made a firm decision on it, but we think should have a nominal impact to same-store NOI based on that reason.

Okay. I guess we’re just trying to sort of bridge the gap, as Todd mentioned, between sort of the same-store growth of 2% at the midpoint, but then the total NOI growth of 1.6% at the midpoint, especially given that the 2019 acquisitions are still out of the pool and those are growing at 4%, as you said.

Yes. So I think in terms of the overall bridge, maybe we can go through that post call. So I don’t over confuse it, but I can walk you through what sort of the NOI build up between those two, because there’s a number of moving pieces in there, right? So I think I…

Yes. So I guess, just maybe sort of bridging the gap between as you think about your five-year plan and that’s 4% total NOI growth, including redevelopment impact sort of getting from that 1.6% in 2020 to a more a higher growth rate back to that sort of target in 2021 and 2022?

Yes. So keep in mind, the 4% is inclusive of 1% redevelopment, right? So I think we look at…

Yes.

…at our total NOI growth through and starting with 2018 as the baseline through 2022, we think we grow 4% or 3% on a same-store basis. So 2019, I think we had a solid year with 3.9%. We think we end, based upon our 2020 guidance, we’re going to be a bit softer if we blend to 2%, but I think we are well on track to get to the all-in 4%, with 3% on average over that period.

Okay. And then just sorry, if I missed this in Amy’s remarks, just in terms of the promote income that you’re expecting in 2020, what’s driving that, what’s putting you in that promote position? And how do you think about sort of what you’re harvesting this year versus expectation for future recognition?

Yes. So we’ll provide more color specifically on that, Christy, as the year progresses. It’s just early in the year, there’s just a number of moving pieces that we feel could and should unwind in the latter-half of the year, but just want to let give it some more time before we provide color on that.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from Michael Mueller of JPMorgan. Your line is open.

Oh. Hey, I tried to jump out of the queue, Todd asked my questions earlier.

It’s always good to hear your voice.

There you go. Thanks.

Thank you. At this time, I’d like to turn the call back over to Ken Bernstein for closing remarks. Sir?

Thank you all for joining us today. We look forward to speaking with you again next quarter.

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