Good day, ladies and gentlemen, and welcome to the Acadia Realty Trust Second Quarter 2016 Earnings Call. At this time all participants are a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Liva Levenfish [ph]. Sir, you may begin.

Good afternoon and thank you for joining us for the second quarter 2016 Acadia Realty Trust earnings conference call. My name is Liva Levenfish [ph] and I am a summer intern in our Acquisitions 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, July 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. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone an 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 Acadia's President and Chief Executive Officer, Ken Bernstein.

Thank you, Liva [ph]. Great job. Liva is one of 13 summer associates who’ve joined us at Acadia for the summer. It’s a great job and I expect they will be making a significant impact in the real estate industry in years to come. We had a busy and productive quarter so I'll start with an overview of our core portfolio of both existing assets as well as new investments then I'll make some observations on the other key drivers of our business. At that time, I will turn the call over for one last time to Jon Grisham who as you know is retiring this year as our CFO. Jon will then introduce our new CFO, John Gottfried and finally Amy will update you on the detail of our fund platform. Given the continued waves of macro volatility we're always looking to see the potential impact to us both in terms of the real estate capital market as well as real estate operating fundamentals. And while we’ve seen some shift in the real estate capital markets, when we look at our operating fundamentals both in terms of our portfolio performance last quarter as well as in discussions with our retailers. We see the fundamentals of our business on sound footing. In terms of our existing assets and our core portfolio as John Gottfried will discuss in detail our same store NOI for the quarter as well as for the year remains on target. As you recall, we previously forecasted the second quarter NOI would dip but then bounce back in the third quarter and this remains on track. Consistent with our thesis, when we look at the different segments of our core portfolio street retail continues to outperform our suburban portfolio by between a 100 and 200 basis points.…

Thank you, Ken. I must confess ever since announcing my retirement last year I've been drunk with excitement planning the upcoming post work decades of fun and adventure. Although, my wife Joel [ph] who has been my anchor over the last 35 years has been trying her best to sober me up some. Just last week and she was pointing out all the projects around the house that I've differed over the years citing work as an excuse and at my day of reckoning as it relates to this procrastination is approaching fast. What an extraordinary experience it has been working with Ken and the team at Acadia over the last 18 years. They are the heart and soul of Acadia and they embody the qualities of intelligence, innovation, intensity and integrity. And John Gottfried as the newest member of the team personifies these same qualities. I've known John for over six years during which he led the New York Real Estate Insurance Practice for Price Waterhouse and although PWC is not our auditor given its broad client base of large public REITs I would often seek John out as a sounding board and trusted advisor on not only complex accounting issues, but on broader thoughts and observations on industry best practices. And now that I have worked with more closely over the last couple of months, I realized that in addition to this expertise, his business acumen, temperament and passion for the business will make John not just a good CFO, but a great one. I am grateful to Ken for the tremendous opportunity and the experience of being part of the Acadia team. I'll always consider myself a member of the Acadia family and I am excited about the future for this very unique and dynamic company. I am also grateful for the opportunity to have worked with and gotten to know many of you on this call. And I wish all of you great success in the future. So with that, I would like to turn the call over to Acadia's Chief Financial Officer, John Gottfried.

Thank you, Jon. I appreciate the words certainly have some big shoes to step into. Good afternoon everyone, I look forward to meeting and working with each of you over the next few months. I am excited to continue providing the level of accessibility and transparency to which you’ve grown accustomed to. Before I discuss our operating results and balance sheet matters, I want to provide an update on the transition from Jon Grisham to myself. I know as Jon just mentioned, we have been transitionally formally for several months following the April announcement. Upon my official start date on June 27th, we have literally been working side-to-side over the past month, truly capitalizing on this well planned opportunity to execute a seamless transition of John's over 18 years of institutional knowledge, relationships with key marketplace constituents as well as day-to-day responsibilities of operating this business. I am also excited to continue John's leadership and the execution of our balance sheet strategy. Which as Ken just mentioned has been to fund our acquisitions on a leverage neutral basis, as well as maintain our best in class leverage ratios and continue our progression towards unsecured borrower. As well as continuing partnering with high quality institutions and the execution of our highly profitable optimistic and value-added strategy through our fun platform. Now, I would like to take us through our quarterly earnings. Earnings for the second quarter came in as we expected at $0.38 before transaction cost. Furthermore, we have reaffirmed our annual guidance to the $1.52 to $1.60, again before any transaction costs as well as any expectations of additional onetime items. Our second quarter results include net promoter earnings of $0.03 per share relating to the sale of heritage within Fund III. Amy will provide further color on us on…

Thanks John. Today I will review the steady and important progress that we continue to make on our Fund platform size, fixed cell mandate. Beginning with acquisitions today several factors including volatility in the capital markets and noise in the retailing industry have converged to create an interesting environment for opportunistic and value-add investing in retail real estate. As we have discussed on previous calls when market volatility strikes and debt spread widen, sellers do what they normally do, at least initially and move to the sidelines. However, we're now beginning to see more motivated sellers and borrower and as importantly we had this discretionary dollars immediately available to deploy into new investments. Year-to-date, we have acquired or entered into contracts to acquire $64 million of investments of the half of Fund IV. We now allocated about two-thirds of Fund IV’s capital commitment. As you'll recall, we have already started to monetizes Fund IV's profits with the very successful sale of the funds weaken [ph] road investment. We are pleased with the composition of Fund IV's current portfolio and we'll continue to identify new investments on Fund IV's behalf through August 9th. Fund V's investment period is then expected to begin on August 10th. Following the conclusion of Fund IV's investment period any unallocated commitments will be released. Looking ahead, we have successfully launched the capital raise for Fund V, which is expected to be a similar size and have similar terms to Fund IV. With leverage this provides us with up to 1.5 billion of buying power. We're very appreciative of the strong support that our existing investor base has shown for us disciplined investment approach. To that point existing Fund IV investors are expected to represent 95% or more of Fund V's capital commitments. These investors include among…

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

Just first question, Ken I was just curious you mentioned that the $480 million combined investment pool for this year is expected to generate 5% NOI growth over the next five years, I was just wondering how that stacks up relative to the 2014 and 2015 acquisitions for example?

I think the growth profile is slightly higher, but I have to think that to the specifics of ’14-’15, but I bet it's about a 100 basis points higher. And then, equally importantly and it kind of makes sense if you think about the environment we're in I also like the defensive profile of a host of these assets that we're adding, whether it’s Walgreen's or Trader Joe's these longer term below market leases within periodic lease up opportunities, I think are going to be really good addition to the portfolio.

Okay. And then your comments about growth expectations for street retail lease is normalizing a bit, what does that mean for pricing on assets, has that changed as a result or cap rates reflecting a slightly less optimistic rent growth environment versus where expectations were over the last year or two?

It's a little tricky. I don't think their cap rates have moved, but let me explain what I mean by that. If you have a stabilized asset with high quality retail leases, the longer term nature, those cap rates have remained solid and for the key markets that we play in they remain at very low level and I think that's understandable given the growth profile and defensive nature. Where the things got tricky over the last couple of years were street retail, where releases were expiring in 2, 3, 4, 5 years and sellers were demanding that the buyers underwrite a doubling of rents because if rents had been growing by 20% a year for five years, they said why not double again over the next five year. That was just silly. And we didn’t play in that and that has not turned out so well for those folks. Is that a change in cap rates? I am not so sure, it is certainly a change in expectation and I would say it's inuring to our benefit because those folks who believed that trees were going to grow out of the sky, I think they’ve been sidelined and now we're able to sit down with sellers and have intelligent conversations, we're able to sit down with retailers and have intelligent conversation about what’s a realistic, what’s a realistic growth profile, what’s a realist rent and now that’s coming together very nicely.

Right and just last follow-up then on the buyer pool, you had commented that it's head down over the last few quarter, I guess you've seen -- have you see the competition decreased further in last few weeks or months or would you say it's leveled off, how would you sort of characterize it today?

There is less debt in the marketplace. There is less entrepreneurial debt in the marketplace. So those folks who are counting on 80 plus percent leverage have been sidelined and are continually more so. On top of that everyone is concerned about a wide variety issues out there, so there is a certain pool of institutional capital that is also gotten more cautious. And then finally there are some people how made promises they can't keep and I see them on the sidelines as well. So, it is a thinner pool and sellers are now saying to us on a regular enough basis that it feels more like a trend than one-off, hey if we can come to terms directly we would rather do that than exposed the property to a lengthy market. And we know you have the capital, whether it's a fund to transaction where it's fully discretionary capital or given our balance sheet strength on balance sheet core acquisition. Certainty of execution seems to be so much more important than it was let's say a year ago and I'd expect that trend to continue.

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

I am noticing obviously the difference between the Fund IV expiring and Fund V, you don't miss a beat. I am wondering just given Amy's comments and this event, does that suggest you're looking at striking on some more existing opportunities I know you had a little bit more challenge buying the opportunistic acquisitions, but it seems like you're going out of your way to make sure you have the flexibility to strike here?

Yeah. So, we had definitely been disciplined and for very good reasons. As Amy pointed out Fund IV has been a very what we believe profitable fund, Lincoln Road has already monetized and we feel very good about our other investments. So, it would be crazy to lose that discipline and just spend the money. But, a lot of the conversations we're having sellers want to make sure that the capital's there and we want to make sure that we have that as well so that’s why we’re lining it out. But for those folks who take the point of view well it's about assets under management, it's about AUM, use that money or lose it I think that's contrary to our overall philosophy and what I have found is when people take the approach of use it or lose, it too often turns into use it and lose it. Which doesn't work for any of us. So, let's see what if over the next few weeks, but whether it's August 8, 9 or 10 we're ready to take advantage of the opportunities.

Great. And then I saw the two of the acquisitions in the Smithfield Portfolio were right in sort of the north loop area. What are you observing there that makes this an attractive core acquisition?

Well, State Street is probably one of the better if not best established Street retail corridors for the kind of retailers that are speaking to today's live, work, play environment. So, whether it's Nordstrom Rack or H&M and Walgreen's Craig, you and I've visited that's their flagship location where they sell everything from typical Walgreen's products to food to wine, et cetera. Those kind of retailers and these kind of locations are the future of retailing and that's the kind of real estate we should own.

Great. Thank you. And then just also I want to wish Jon Grisham a successful retirement.

Thanks Craig.

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

Hey great thanks. Ken may be just a follow up on a lot of the core activity that we've been seeing here this year. Is that just because there is more core product on the market or is it your cost of equity that's may be influencing why you're pursuing those types of deals?

And I guess it would be Street [ph], which is that certainty of executions seems to be making enough of a difference. It's hard for me to articulate that Cap rates moved as much as sellers more realistic about what lease up prospects should look like and how they get capitalized into a deal and sellers and much more appreciative of the fact that we have the capital and we’re ready to go. So, I would attribute it to that shift I don't think that there is more core on the market although if someone has an asset that is stabilized and they are thinking of monetizing given where rates are given where the market is please call us and I don't know why they would wait. So that's kind of where we see it.

Okay. And may be John looking at the 1.3 million you mentioned in incremental interest income is that run rate that's going to continue and if so, what's offsetting the benefit there?

Yes, so I think that would be the run rate that we would consider going forward, would be the incremental 1, 3 and I take that against Q1 interest income, so roughly call it 5 million of pro rata interest income for Q3 and Q4 and I think the offsets would be just our cost to capital and the leverage that we used to fund that. So the spread isn't as a large as you would otherwise think.

Great, Jon, I guess I'll pass my condolences on your retirement.

Thank you, Jay.

Our next question comes from the line of Christy McElroy with Citi. Your line is open.

Just a follow-up on the street retail question realizing that asking rent expectations just came, but it was also some of the vacancy, are you seeing any market rents decline, so secondary market rents versus asking rent, market rent being as measured by the leases that actually get signed. Has that being trending lower or is that still flat to higher?

It is street-by-street and states-by-states specific, but to my sense there have been movements in both. I say my sense because we don't have a lot of lease turning, so I can't speak to our own portfolio and so far we've been very pleased with what execution we have seen. Well, first of all we're not part of the asking rent community that is asking absurd rents, so maybe we're not getting disappointed there. But in terms of actual rents, there definitely has been some shift and I would point that out as follows. For those markets where rents have been growing 10%, 15%, 20% a year, well if rents have fallen off back to 2015 levels and that's not a large amount of time but that could be a 20% drop. And so each space and each landlord has to think about that individually, we don't have a lot of that. So it's not as though we've seen that shift directly, but there were expectations that were unnecessarily optimistic, we weren't part of that and if those have normalized, it's working to our benefit because it's sidelining some of the other folks and enabling us to rest execute on a more rational baseline.

And in terms of the settlement of the remaining forward equity offering, Jon, I think you've mentioned later in the year, what the expected close time of 555 Ninth and would you expect to issue more on ATM look here?

Yes, so expected close time is going to be in the fourth quarter. At some point I would say probably a latter half fourth quarter just given it has had complicated process with the loan assumptions that we're working through, but it's on track but we're projecting that to be in latter half of the fourth quarter and I think we will continue to evaluate whether it makes sense to users ATM which we just reopened in early July.

And Jon again good luck, I sure if you get tired of house project that you can always come back as a summer intern and you can review the Safe Harbor on the call.

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

So I am looking just here at the guidance that you have for acquisitions going forward for the rest of the year. And I think it ranges from nothing to a little and I am curious is that because you’re sandbagging which I sort of suspect or is there just not that much that you're seeing at this point for the rest of the year in the pipeline?

So again I am confronted with neither A nor B, but C. We are not trying to sandbag anyone. We're seeing plenty of big deals left. So, what I guess I would add to that Rich acquisition volume guidance has been about my least favorite all of our guidance metrics because we're first and foremost about creating NAV growth per share and people try to model immediate earnings acquisitions accretion and it's kind of silly, if we see good deals we'll do them provided the capital markets are there for us and if we don't we won't. We are currently seeing good deals let's see what plays out, let's see when it hits, it sounds like a good place holder for now and stay tuned.

Okay. Alright that's fair Ken. Thank you. And then on the Brandywine asset help us understand exactly what's going on there because I wouldn't think that's an asset you really want to own despite the fact that it may impact the good asset, I mean with your move toward more street retail urban recollect kind of thing another suburban center is probably not top on your list. So, why this investment I guess and where does it go from here? Do you think you end up with that asset is that the idea?

Well, so first of all, within our core competencies is a wide range of skills and we like Brandywine just fine, we own 20 plus percent of it and if we didn't like it we wouldn't and we like our overall portfolio, but you are absolutely correct, our march forward is towards the more productive, more high demand by retailer locations in street and urban. That being said, within our given portfolio, we're always faced with different opportunities to either potentially by our partners or recapitalize and there is a lot of ways we can solve this. So, the answer of what are we going to do, I don't know yet. But what you have seen many instances is we had successfully brought in institutional partners, you saw us do that recently in Cortlandt Manor, you had seen us aggressively sell assets we can do that as well. And we're very comfortable owning as asset that we have for the last 10 years owned. So, let's see how it shape out, but I wouldn't over think it other than it made abundant sense for us to make mezzanine loan when we did. It may be equal amount of sense for us to clean up unencumbered and have a first mortgage on that and the assets are very good assets although again not part of Street and Urban very good asset with target and lows and Trader Joe's and Bed Bath and Beyond and the list goes on and on. So, if not on our balance sheet it will look very good some else's.

Alright, good great. Thank you. And Jon best of luck and if you do want to do sell side research call us first.

Looks like a lot of fun I mean I have to think about that.

Yeah, I bet it does.

Our next question comes from the line of Michael Mueller with JPMorgan. Your line is open.

Yeah, hi. So quick question, value add and opportunistic, it's pretty broad term, so I am thinking about Fund V and money going out to the door and to the fund, I mean what types of investments do you see going into the fund over the next few years?

So first of all with the following caveats that every time I think know two years from now will look like, there has been proven profoundly wrong in terms of where the opportunities are. And the nice thing about the fund business is within our core competencies, we have fully discretionary capital to execute where we see opportunity at the time. So if you would ask me today what I would have observed is that, cap rates for high quality core are about as lower as I've ever seen them. And the new development opportunities are really hard to do in open air retail, but that the spread between high quality and then more secondary cap rate is about as wide as I've seen and the bid for high yield is starting to look real attractive. They are harder to finance. There is some trips to them. I wouldn't want on the long-term, but we're seeing some high yield opportunities now that looked pretty darned compelling, that would fall into the opportunity, it would absolutely fall into the category of things that you would not want to see in our core portfolio on our balance. And that would blends very nicely into our Fund platform. Then on top of that some of the other more traditional type of fund acquisition you’ve seen us do. So heavy lifting turnaround even is great markets, higher risk, but we have the expertise to buy a building, vacate it, put in the right tenants, you’ve see that us do it in our off Madison development and we're doing it elsewhere or what we're doing on Broughton Street in Savannah, Georgia where we're finding great streets where we can own a significant amount of square footage and then bring in the national, international retails that we work with. All of those could fit very nicely into the heavy lifting, value add and are opportunities. But I would have to get today, it's watching CapEx in shops for the more generic assets as some point given that the CMBS market doesn't seem to be financing them as aggressively given that the balance sheet lenders aren’t, there does seems to so opportunity there/

So little bit more of clipping a higher coupon as opposed to banking on cap rate compression.

Yes.

Thank you. [Operator Instructions] our next question comes from the line of Floris van Dijkum with Boenning. Your line is open.

Quick question or maybe Ken as strategic question, as I you think about and Jon you sort of alluded to this in your prepared remarks as well what the Company could have look like year or two years’ time. But if you think out a little bit further [indiscernible]. The proportions for retail in portfolio relative to two year suburban assets and also how should we think about the sort of the growth that you would be churning at that point?

Sure. What did I pick start at that John and then add any color to it John. A few distinctions, one was John Gottfried talked about in prepared remarks was the percentages of NOI which obviously based on cap rates is different in terms of percentage of values. And so, right now where we sit today just under half of the value as we attributed of our core portfolio is Street Retail little over 20% is Urban and this is inclusive of the acquisitions that we anticipate to close over the next few months and then roughly 30% is suburban. And I am fine with that balance and I would never want to confine ourselves to not adding an urban or street because of some metrics, most focused on making sure we had adequate geographic diversity, adequate tenant diversification, adequate growth and adequate defensive profile and within that gamete I see a nice balance with what we have. That being said, as we look at deals adds to our core and we try to stay agonistic as to what might come in today that we're interested in, if it's within any of those areas and it's priced correctly we'll take it down, but where we have seen most of the opportunities to create long term values it's been in the Street and the Urban. Not because the cap rates are higher they are not, but because the long term growth profile, the long term tenant demand as we talk to our retailers and hear what they are interested in. We keep seeing better long term value creation in those. So, if that's the case I would expect to see us grow our portfolio by about 20% a year this year it looks like it will be higher, last year it was a little bit lower. So assume 20% a year or roughly a doubling over the next five years with the vast majority being where our retailers are most enthusiastic about going. If their enthusiasm remains for Street and Urban than that's where you will see the majority of the ground. So far in the omni-channel world we're living in that's what we're seeing. But, if asking rents are too high and retailers say we don't need it, if there are shifts in how retailers are thinking about the future we're going to shift with it. Right now, though it feels like we're responding to the right opportunities based on what we're seeing demographically, based on what we're seeing in terms of omni-channel retailing and how our retailers are going to grow and based on the capital markets. So that's about as a lengthy, a here's what you should expect over the next five years. John anything you want to add.

Yeah, the thing that I would add for is that if we think about the timing when these acquisitions will -- were put in place and when they’re projected to be in place, we're not going to see the results of what's been a fairly sizeable investment. In the past year until Q4 2017 into Q1 2018 so I think it's somewhat forward looking in terms of just how the math works for same store NOI that really going not to see the true growth in these assets and net reported number for quarter weighs out.

So if I mention before I don't love giving guidance as to acquisition volumes we all share a certain level of cynicism with respect to what same-store NOI means or doesn't it. That doesn't change our point of view of what we're going to add, how we're going to add it et cetera.

Thank you. And I am showing no further questions at this time. I'd like to turn the call back to Mr. Bernstein for closing remarks.

Thank you all for joining us on our summer session of earnings call and I wish everyone a pleasant balance of the summary and again Jon Grisham thank you. Have a good summer everyone.

Ladies and gentlemen, thank you for participating in today's conformance as those complete the program and you may disconnect. Everyone have a wonder day.