Welcome to the First Quarter 2014 Acadia Realty Trust Earnings Conference Call. My name is Vivian, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Amy Racanello. Ms. Racanello, you may begin.

Good afternoon, and thank you for joining us for the First Quarter 2014 Acadia Realty Trust Earnings Conference Call. Participating in today's call will be Kenneth Bernstein, President and Chief Executive Officer; and Jon Grisham, Chief Financial Officer. Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934, and actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainties, including those disclosed in the company's most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, May 1, 2014, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. With that, I will now turn the call over to Ken Bernstein.

Thank you, Amy. Good afternoon. Thanks for joining us. Today, I will start with an overview of our performance, then Jon will review our earnings and our first quarter operating metrics. We're 4 months into 2014 and off to a strong start. We're meeting and exceeding several of our key metrics and goals with respect to our core portfolio. Not only did our existing assets produce solid same-store NOI growth but also, by continuing to accretively add higher-growth street retail assets, we believe that we're further differentiating our company and positioning it for continued strong performance. Then with respect to our fund platform, we continue to make important leasing and development progress on our existing investments, and in the first quarter, we also expanded our street retail program with an investment in Savannah, Georgia. This investment is consistent with our emerging market, or what we call next-generation, retail strategy. Then finally, as Jon will discuss, during the first quarter we maintained our historically strong balance sheet metrics, and thus, looking ahead, both platforms are well positioned and well capitalized for growth. So with that in mind, let's begin with the review of our core portfolio. I'm going to leave a detailed discussion of our operating results to Jon, but I'd like to point out a few observations. First, our strong same-store NOI growth follows a very solid 2013 performance, and it's consistent with our full year guidance of 4% to 5%. Looking ahead, as our portfolio approaches stabilized occupancy, more and more of our internal growth will be driven by a combination of contractual rent increases and then periodic mark-to-market opportunities. Approximately 1/2 of our core portfolio's value is now comprised of street and/or urban retail, where strong tenant demand and rising market rents are creating outsized opportunities for growth.…

Good afternoon. We are pleased with our first quarter results in both the core and fund platforms. A few areas I'd like to expand on for the purpose of this call are the core portfolio, our structured finance portfolio and earnings. First, an overview of the core portfolio, which generated strong results for the quarter. Occupancy was 95.6% at quarter end, which was up 40 basis points over year-end 2013. And on a same-store basis, first quarter 2014 overall occupancy was 95.2%, up 140 basis points over first quarter 2013. And the shop space occupancy of 90.2% represented a 170 basis point increase. Same-store net operating income was up 4.3% for the quarter, some noteworthy points related to this. Full year 2013 same-store growth of 7.2% includes some contribution from re-anchoring activities. For first quarter 2014 and, for that matter, our full year 2014 forecast of 4% to 5% do not include a similar contribution from these activities. And the first quarter growth was broad-based across the portfolio. But that being said, we did experience higher growth in our street retail portfolio, which currently makes up about 1/3 of our same-store pool. Also keep in mind there is another 10%-plus all-street retail of our current NOI that is from our 2013 acquisitions and accordingly isn't currently included in the same-store NOI pool. The other interesting phenomenon is that, to a large degree and different from the experience of some other retail portfolios and, even for that matter, different from our own experience in previous years, the net impact of winter-related expenses was not a significant drag on our NOI. The 3 underlying factors that mitigate this for us are: one, our recovery of these expenses is very high, as occupancy now stands at over 95%. And furthermore, although some of…

[Operator Instructions] And our first question comes from Christy McElroy from Citi.

Just in terms of Broughton Street, what's your unit [ph] street retail in Savannah mix, if you could provide a little bit more color on what the street looks like today? What's sort of the long-term vision there? And can you talk a little bit about growing in yields and projected returns?

Sure. So first, I got to give Ben Carter a lot of credit for recognizing that given what is going on in other streets, ranging from Charleston to what we see in Georgetown, that he saw that there was clear demand based on the number of tourists they get and of the style of the street, the architecture, and the potential. He spent a fair amount of time educating retailers, so by the time we got involved, our retailers were pretty clear to us that this is an exciting area for them. So the same retailers that we work on, whether it's in Chicago, Westport, certainly SoHo, you're going to see many of them showing up. And as I mentioned in my remarks, we've already signed with J.Crew, which I think is a pretty good leading indicator. As I mentioned, our investment -- because we've spent less time on this than Ben has, our investment is a senior preferred, and what that means is we're 50-50 partners, and assuming that this does well and we're all very confident about it, we will share 50-50. But in terms of downside protection, we get our capital back, plus a return on our capital, which affords us a fairly nice cushion. So we're expecting mid-teens levered returns, and that's how our deal is structured. But in terms of the potential of this lease-up, there's no reason that on an unlevered yield basis, if these retailers are showing up the way we expect, that we won't see our traditional unlevered goals ranging from 6%, 7%, 8%, 9%. And then in all of those instances, because of our senior preferred, it translates through very nicely. So what -- if you come visit this property or the street in the next few years, and my guess is it's a year away, what you're going to see is the perfect combination of local merchants, who are doing a fabulous job down there, with the right fashion and lifestyle retailers that we're used to dealing with. And I think it's going to be a good extension as retailers start thinking about where can they open exciting, new brand-consistent locations given that there's not going to be more A malls developed, and there's a limitation in how that executes. Coming to SoHo is fabulous, and we want to see them all there, but they're also thinking about where is that next generation. This opportunity gives us a chance to be responsive to the -- to our retailers and also come in on an attractive preferred basis.

And Ken, you mentioned a continued cap rate compression in some of the more major markets that you've been buying in, Chicago, Manhattan, Fairfield County. You have $150 million under your belt so far for this year. Can you talk about the cap rates that you're paying in each of those markets where you're buying street retail for the core?

Sure. And let me break it out into a few components because I think it's worth noting. If what we said was we need to spend $1 billion on street retail in the major markets, we would certainly be forced to bid and do most of our transactions at kind of best pricing in well-marketed deals. And that in fact is a fairly small piece of what we're doing, but what we're seeing, for the right assets in SoHo, cap rates are 4% and lower. For the right assets in Chicago, they may be 50 basis points behind but not much more than that, in Westport, Connecticut; Greenwich; et cetera. But keep in mind, if you look at last year, for instance, and our yields expectation this year as well, we're going to be in the 5s. And the way we get there is, one, we're not doing $1 billion of it. Two, as Jon had mentioned, a certain component of our transactions last year in Tribeca, for instance, it was an OP unit transaction. And as most people aren't familiar with OP unit deals: they're tax deferred and the contributor of the asset is often looking to take their high-quality asset and diversify it but not dilute the quality. So if you have a high-quality street retail location and you own it, and a low tax basis, we're an ideal candidate for that contribution. And while you'll care about pricing as the contributor, you're thinking 5, 10, 15 years out. So that has also helped us on pricing. And then finally, what I mentioned in terms of our latest Spring Street acquisition, there we made an opportunistic loan helping out a developer entrepreneur 1.5, 2 years ago with the understanding that we were locking-in a option to buy at a fixed-cap rate that is 50, 100 basis points-plus better than where it might have executed in the open market today. So I am not a huge believer that off-market deals automatically translate through into a benefit to us as buyers, you as shareholders. But by not having to do a huge amount of volume and being selective, by utilizing our ability to issue OP units or utilizing our ability to make these opportunistic mezzanine loans, we're able to what we think is buy accretively and ahead of kind of where the markets are today.

Many of your street retail tenants, I think, report sales up to you. Is that something that you would consider disclosing in the future as you continue to amass a street retail portfolio?

I'll get into -- Christy, I want to let other people chime in with questions, but we'll get into, I suspect, the discussion of tenant productivity. So I'll make sure to answer that at some point.

And our next question comes from Craig Schmidt from Bank of America.

I'm curious about how many potential next-generation street retail markets there may be. Obviously, you may not be able to specify, given that you don't alert people, but just how many more markets could you be sort of rolling out in, like a Savannah?

So I am disinclined to say a specific number. The stars have to align correctly, Craig. So there are certainly even primary markets that we're not in today, and we've been pretty clear that, whether it's primary or secondary, we're going to be very thoughtful about which next steps we take. So you could go up and down the West Coast and point to 2 or 3 markets that you'd like to see us in someday, and we very well may be, but we're going to be very deliberate about that. As it relates to the Eastern Seaboard, there are only a handful where our retailers are interested, where the barriers to entry and the right entry point exists. And when it does, we'll show up. We thought, for instance, that Lincoln Road was, at the time we bought it I think that was the general perception, that it was kind of up-and-coming, emerging. What happened in the phenomenon in Miami overall, where Miami is on the cusp, if not already considered a core market, has been fascinating and very rewarding for us to see. But there are certain ones in Florida, certain others as we move up the Eastern Seaboard into Boston, but very few. And we don't need many but when we see them, we'll certainly execute on them.

And I guess just the tenants we're talking about in Savannah are for the most part domestic. Do you think this ultimately is a market where we could see the international retailers come as well?

I think so. The international retailers are clear to us that almost without exception, when they're thinking of a entry into the U.S., that there are a handful of key first markets. And thankfully, we're in many of them. But then they'll talk about additional rollouts. The other thing that you need to keep in mind with international retailers and, frankly, all of our retailers is they're thinking about all of their different channels and different ways to utilize these channels. So resort and vacation destinations could be part of a multichannel rollout, but that may take a few years for several of these retailers to execute through. And that's fine with us because the domestic interest, if you want to refer to it that way, is real strong.

Okay. And then do you want to comment on sales productivity of your tenants with [indiscernible]?

Okay, but then you're going to -- so it would strike me as next to impossible for us to be able to disclose store-by-store productivity and sales. And our retailers would really push back on that. But we will endeavor to provide better and better information as to what kind of sales productivity we're seeing on the different retail corridors that we're most involved with, whether it be a Greenwich Avenue or a Spring Street in SoHo, et cetera. But I think it's important to not overfocus on any one metric. And sales would be one of those metrics that we all like to really focus on, but I would caution everybody. We think about our retailers' sales in a broader form of tenant health. And just like any of our own health, we wouldn't think of looking just at our blood pressure. Retail sales are one of the metrics, and as we talk to our retailers, sure, it's important, but it's one of the metrics. So keep in mind, first of all, that not all sales are created equal. And by that, I mean, if you're in a generic retail location doing $275 a foot, your rent-to-sales ratio is going to be really important because your fixed charges are a big part of your total sales. As you start moving up, and in most of our locations we're in much higher sales productivity than that, what our retailers tell us is that in many instances, because fixed charges remain the same otherwise but for rent, that the rent-to-sale is a component but not nearly as critical when you're doing $1,000 a foot or $1,250 a foot, et cetera. Additionally, we ought not underestimate the importance of omni-channel, of branding, of watching our retailers tear down the barrier between the online execution and in-store. And so those locations that afford that best execution are also much more valuable to our retailers even if it doesn't show up in the reported sales. Finally, what I'd remind all of us, and we see it everyday, the retail business is a very Darwinian business. So while I like looking at tenant sales, it's very often that you'll see a retailer's sales continue to decline even when other retailers are continuing to thrive. And we need to recognize that in the supply-constrained corridors that we're active in, there are some retailers that I'm very fond of that this may not be the right location for them. And that's fine with us because given the strong rental growth, almost without exception, we're happy to take that space back and make a nice re-leasing spread on it. So we're going to work to provide more information where we're allowed to, where we can. I think it'll be interesting, but let's not overfocus on it because I think that would be a mistake.

And our next question comes from Todd Thomas from KeyBanc.

Just first question, just regarding the big rent spread in the quarter, I was just wondering if you can share how many square feet that was within the overall new leasing square footage that was completed in the quarter. And then also, it looks like a big number for the tenant improvement, so I was just curious how much time it might take for rent to commence at that space.

Yes, it'll take a few months, plus, Todd, because we are doing a pretty extensive gut rehab of it. Jon, I think it's 11,000 square feet?

Yes, it's 10,000 square feet. That's right.

Right. And I don't mean to be -- we'd like to provide a lot of transparency. There's a few relatively minor steps that we need to go through to make sure that we get this tenant opened on time in the right way. And so we're not providing the usual amount of details on this, but on our next call, I think it'll all be crystal clear.

Okay. Well, just to get a sense for sort of the economics on a street retail property like this, I was just wondering, though, if you could talk about the unlevered IRR at this property. So you're investing some capital, maybe what your yield on total costs will look like once rents commence?

It will be very good, Todd, but that's exactly what I don't want to do. I don't need to read in Crane's that we're making a gazillion dollars on the following thing until we've dealt with all of the minor, but you never want someone putting their hand out unnecessarily. It's all good. And I'll shift away from this specific one and just say, in general, what we like about the street retail component of our portfolio is just that: when we can get back these spaces, there are often opportunities because the markets continue to build, and the tenant demand, and it's a fragmented business, as opposed to in our suburban where our retailers are consolidating, there's more new retailers that, a year ago, I hadn't even heard of that are interested. So in general, when we're afforded the opportunity to get space back, it's going to be additional upside. But to also point out the obvious in street retail, there are tenants above us. There's co-ops above us. There are a host of other players involved. I just want to make sure we get all of those pieces buttoned up before I read about this in the press. And it's not that big that I would encourage the press to write about it, but it's a nice pop for us, and I apologize about being even slightly coy.

Okay. No, understood. Just lastly then, Jon, the promote income that you quantified, I think you said $0.10 to $0.15 a share, so I guess $7 million, $8 million to Acadia. That's just related to the potential sale of air rights for -- at City Point. So is it correct to assume that, at that point, Acadia will be in the promote for Fund II and then all cash flow and return of capital from the commercial space in City Point and a few other assets in Fund II will get distributed according to the promote splits going forward?

No, no. So we called that -- all of the investments in the fund are pooled. And all the capital, all the fund capital and all of the prep has to be paid out before we're in a promote position. And frankly, that won't happen until down the road when we most likely monetize the rest of City Point. So it's a little bit early to start talking promotes at this point.

And our next question comes from Jay Carlington from Green Street Advisors.

Ken, can you maybe talk about what your street retail occupancy cost ratios are, and maybe the comparable market occupancy cost ratios are for your portfolio?

Kind of. So -- and I was touching on this before, Jay. The sales run the gamut. And so as you can imagine, if you have a thriving Lululemon, for instance, who can do $2,000 a foot in sales in a $1,000 a foot market in general, rent-to-sales are going to look very well. But Lulu, to their credit, said, "That's fine. Those are our sales, not your sales." So it really does run the gamut. And I would caution any of us from being overly focused on just that metric because, as I said before, not all sales are created equal. And as you get into the higher-higher-productive locations, rent-to-sales is less of a factor, when we talk to our retailers, than a broad base of factors. That being said, what we are seeing is, in our suburban portfolio, the flexibility that I was just articulating does not seem to come up in our retailer conversations with the many retailers that I love very much but ranging from Bed Bath & Beyond to T.J. Maxx. And they're very disciplined about their rent-to-sales ratio. Those two will range but they'll often be single digit, high single digit, to 12%, 13%, in some instances. And they need to be -- if it is a more common productivity location, they're going to be very vigilant about that. They have their model, they have their tight margins and they need to watch that carefully. So the suburban side, it matters, and we would need to drill down retailer or category by category because, as you can imagine, Kmart sales -- and a good Kmart looks very different than a good Target. On the street retail side, we're watching it because we need to know in general that not only are our retailers passionate about coming to Rush Street, passionate about being on M Street in Georgetown, but that they're also profitable. And in those discussions, they have assured us they're are not doing these leases with us for kicks. These are profitable locations. They're renewing because they're profitable locations, but the -- I am hesitant to point to one rent-to-sales and say, "This is good. And anything higher rent-to-sales than that, we're in trouble, and anything lower, we're safe," because it just doesn't play out that way.

Okay. So -- and maybe on the potential acquisitions in some of your core street retail kind of unrelated to pricing. Is there a certain radius that you maybe look to consolidate? Because a lot of your deals that you're doing are across the street, on the same block or in the same neighborhood. So can you maybe talk about what type of synergies you're seeing there or how you think about your next purchase down the road?

Yes. So -- and I've always been very cynical about the concept of synergies. It's something that we all kick around, but often, they're promised and not delivered. So here, there's a few different phases. First of all, there's what I would call retailer intelligence. And that means, if we have 4 or 5 stores on the Rush Street corridor, for instance, we then know which retailers are doing well, where there's demand. As our leasing team is talking to new retailers looking to enter the market, we get a sense of how aggressive they might be willing to do. So they -- it increases our knowledge, it increases our confidence in a given submarket. And that's step one and that is very helpful. I never want to underestimate that. But then the question will be, and we're starting to execute on this in a few places, in Chicago and Lincoln Park, for instance on Clark and Diversey, through now, it's been, I think, 5 acquisitions, we have amassed a high level of concentration and control on that submarket. The rents have grown significantly. Nothing to do with us, it's a great market, but now we are in a position where we can get back a bunch of space, move some tenants around potentially and bring that somewhat more dated physical plant to the next level. So as you see us concentrate in certain submarkets, that will help as well. And then the final piece, because I do think you will see us continue to add to the markets we're in as opposed to dabble in the markets we're not in, is the deal flow is just better when you're there. So we get to know our neighbors. If they want to contribute assets for OP units, we know them that much better. We know and we're the first call for many of the brokers who are involved in many of the transactions. So it just helps in terms of getting first looks, early looks, et cetera. All of that, I think, starts to inure to our shareholders' benefit, starting kind of where we are right now. So 50% of our portfolio is street retail. We have doubled the size of our portfolio over the past few years. I've been pretty clear that we were too small a few years ago. I think we're now getting to a point where we're starting to feel the benefit of all of those leverage points. And then my expectation is that starts to translate through in terms of growth along the lines I just talked about.

And our next question comes from Paul Adornato from BMO Capital Markets.

With respect to City Point, if you're looking at a late 2015 or early '16 opening, does that mean we'll have some visibility on the shop space rents by the end of this year?

It'll -- it's -- we'll see, Paul. So we have been extremely disciplined about mitigating our risks over the past several years. And in each of these mitigations that we sold a year or signed a lease 3 years ago or sold a residential, because of how much this market has appreciated, we definitely left money on the table. And I'm okay with that because our job is to be responsible shepherds of capital. And so we have pre-leased 5, 4, 3 and 2. We have sold off -- or about to sell off this year all of the residential. I don't want to appear or sound greedy as it relates to street retail, but this is going to be great street retail space. And in case any of our retailers are listening, they're not going to get a discount for signing this week versus 4 months from now. There's a few key retailers that we're working with now, and if they step up, fabulous. If not, this space -- because Fulton Street is taking off. This space is going to lease up really well, and we have earned the right to get the right rent for all of this. Nordstrom Rack just opened this week. H&M is open there. There's a host of other retailers that are coming in. So I -- we're going to do the right thing by this, but I don't want to measure it in terms of a fourth quarter earnings call or something like that. When we find the right retailers, when they're ready to pay the right rent, we're signing them.

Okay, fair enough. And Jon, with respect to the big lump that you're expecting of -- with the sale, $0.10 to $0.15, as you mentioned, any thought to letting shareholders take their lump, so to speak, in the form of either a regular dividend increase or a special dividend?

Would that be 1 lump or 2? Well, obviously, we're looking at our overall tax position and our REIT distribution requirements. So let us get further down the road in terms of 2014 and we'll see how this fits in with our overall position. So it's a little bit early to start talking special distributions at this point.

Okay. And maybe just one more. Ken, I was wondering if you could just provide a comment on competitive capital flows out there. There's a lot of talk of a lot of private equity money looking to invest, and so how does that affect perhaps your fund pipeline?

Yes. And it's funny speaking to private equity. I read in The Journal this morning one of the private equity CEOs saying that the world continues to be awash in liquidity and investors are chasing yield seemingly regardless of quality and risk. And that resonated for me because we are certainly seeing, and to the credit of the REIT community, less in the publicly traded REITs and more in some of these other vehicles that are raising a lot of capital and are focused and probably overfocused on yield seemingly regardless of quality and risk, that, yes, there is a healthy amount of capital out there. That being said, I don't see anything in the near term that is nearly as troubling as it was in 2006 or '07. And so I don't know where the disruption -- or I wouldn't wait for that disruption. And from our deployment of capital, what we're starting to see is entrepreneurs reemerge into the marketplace. They're willing to take risks, but they're looking for institutional partners who can also provide execution ability. Our Savannah deal would fall into that category. We are seeing some debt maturities that require recapitalization, thus how -- continue to be fairly cautious disciplined about how we put that money to work. If the deals aren't there, we won't, but there should be a fair amount of opportunities as this market continues to evolve.

I'm not showing any further questions at this time. I would now like to turn the call back over to Ken Bernstein for closing remarks.

Thank you, all, for taking the time listening today. And we look forward to speaking with you in the near future.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.