Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 Acadia Realty Trust Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today’s program maybe recorded. And now, I’d like to introduce your host for today’s program Nishant Sheth. Please go ahead.

Good afternoon and thank you for joining us for the third quarter 2017 Acadia Realty Trust earnings conference call. My name is Nishant Sheth, and I’m a Senior Analyst in our Capital Markets Department. Before we began please be aware that statements made during the call that are not historical maybe 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, November 3, 2017 and the company undertakes no duty to update them. During this call management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Acadia's Earnings Press Release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. President and Chief Executive Officer, Ken Bernstein, will being today's management remarks with a market overview and discussion of the company's core portfolio, followed by Amy Racanello, Senior Vice President of Capital Markets and Investments, who will discuss the company's fund platform. Then Chief Financial Officer, John Gottfried will conclude today's prepared remarks with the review of the company's earnings, operating results and balance sheet. Now, it is my pleasure to turn the call over to Ken.

Thank you, Nishant. Good morning. Over the past several quarters we discussed some of the legitimate headwinds impacting retail real estate and then try to shed some light regarding confusion between which of these headwinds are more traditional short term and cyclical and which are longer term secular changes. So today in reviewing our third quarter results, I’ll discuss how these trends are impacting the different growth drivers of our business. In general, we are seeing things play out consistent with our overall thesis with a few worthwhile observations. First observation, we see stability, not withstanding overly negative and overly simplified headlines around retailer headwinds. As we look at our core portfolio, as we look at our cash flows, they remain solid and long term growth prospects remain strong. But the fact that we see stability, the fact that we see long term embedded growth doesn’t ignore that a variety of retailers are facing real challenges. Now these challenges are having different short term and they are likely going to have different long term impact on retail real estate depending on the property type and the retailer. But to view all retailer challenges are somehow permanent or caused solely by ecommerce, it’s missing the point. My other observation is looking at our third quarter results, is that this summer new activity both in terms of new leases and new investments was quieter than we had hoped. Now while some of it might be attributable to summer holidays, and I get that patience is a virtue, it’s just not one of my strong points and its certainly doesn’t help our short term metrics. So I’m pleased that we are seeing things start to pickup. But more important, when we take a step back, we look at the different drivers of our…

Thank Ken. Today I’ll review the steady and important progress that we continue to make on our fund platforms V, VI, VII and VIII. Beginning with acquisitions, as discussed on several calls, our funds have been pursuing a barbell strategy, acquiring both high quality value-add properties and high yield or other opportunistic investments. On the value add front, retailer interest and high quality urban and street retail remains strong, although the process for leasing space is talking longer. And despite all the negative headlines, from an acquisition perspective, there is no actionable distress to speak of. On the other end of the barbell we are finding interesting buying opportunities in the 7.5% to 8.5% cap rate range. The focus here has been on stable properties and solid, but less favored secondary markets. This has included Wake Forest in North Carolina, Canton, Michigan and Santa Fe, New Mexico. These assets may not have the right long term profile for the public markets, but on a one off our portfolio basis, we can take these assets private and using two thirds leverage generate mid-teens current returns for our finite-wise fund, unless it’s a lease up opportunity. At these cap rates we don’t need much growth in an OI to meet our target returns, but we do need stability. As a result, finding these types of centers in good location with the profitable stores and rational co-tendency clauses had been akin to finding needles in a haystack. But be assured, as we look ahead to our own exit, we are sober to the fact that sponsorship matters and are careful not to assume that the next fire will achieve the same attractive financing terms as us. During the third quarter Fund V added two high yield properties to its portfolio for an aggregate…

Great. Thank you, Amy and good morning. I like to first start off by reviewing our third quarter results. We had a strong quarter with FFO coming in above our expectations at $0.37 per share, which was assisted by approximately $0.02 of profit taking within our fund business, including $400,000 of net promote from a Fund III asset sale. We are not anticipating any additional promo for the balance of the year and we continue to reaffirm $10 million of remaining net promote income for Fund III. Although very early in the disposition process, we are currently projecting that up to half of this could be captured in the second half of 2018. As you’ve seen in our release, we have tightened our guidance range for the balance of 2017 to $1.45 to $1.49. As we guided on our prior call, this is slightly below our original midpoint and was driven by the lower than anticipated investment volumes that Ken discussed, along with earlier than expected repayments within our structured finance portfolio. Now moving onto occupancy, one of our key strategies to enhance our NAV and generate long term growth is through the recapture of space, particularly on our street assets. We continue to believe that the long term benefits of this strategy will far out weight the short term volatility this generates in our quarterly metrics. I wanted to provide some color on the spaces that we’ve recaptured over the course of the year. In aggregate this space is comprised of 30 leases with AVR of approximately $5.5 million. While we’re certainly active on all 30 of these leases, as I have shared on prior calls, the vast majority of NOI and thus our short term performance will be driven by the timing of achieving rent commensurate dates on…

[Operator Instructions] Our first question comes from the line of Christy McElroy from Citi. Your question please.

Good morning. This is Katy McConnell on for Christy. Can you provide some more color around the slow leasing velocity and relative to your previous expectation of the bulk of leasing will be done in six to nine months. How are you thinking about that timeframe today and how that could impact potentially lower NOI growth in 2018 versus the initial 5% to 7% expectation?

Let me take a first cut at it John and then maybe you could add some detail and reiterate how timing sensitive it is. The summer was quiet as I had said. If you had asked me six or nine months, I said we had a dozen leases to do and we could simply achieve that being the lease of the month cloud and now we got to be more like the least of the week club if we want to get rent commencement date done by January 1, and so frankly I don’t see that. But that being said, in the past several weeks first Serena & Lily stepped up and now our team is working with a handful of other retailers who are showing legitimate interest, legitimate rent. So from my perspective what I care about is will that NOI be there at some point in the next year. I care less about the specific timing, although I get that that impacts our quarterly results. I care about that $20 million of NOI that John talks about that and for that we’re feeling good. So John, why don’t you reiterate them from a timing perspective, the impact of when these leases occur.

Okay, good morning. So I think you know as Ken said I think it really is going to be driven by these 11 which is really now 10 basis points given the Serena & Lily, lease we execute it. So I mean breaking that down, I bet so assuming we have 2% to 3% growth already accomplished, you know again following up with what Ken said in order to get you know this incremental leasing or from these tent leases. In order to get that incremental, call it 3% to 4% of incremental growth, we would need to sign those on January 1 and the way that I think about it every month that we slipped, again averaging those 10 leases its gone to cost us 25 basis points of growth each month, that is beyond January 1. So again what I can say is that while we are very confident on the prices that we are assuming that will enable us to capture that growth and the way that we think about how that flows up in our NOI over the next four years. I think that share Ken’s confidence that hitting, January 1 day on each of these 10 remaining leases is, does not look to be like it’s going to happen.

And let me just one final point as John articulated, it’s close to 400 basis points of embedded growth. And if it’s January 1, then our numbers look at the high end of whatever we had expected. As long as it shows up, it may not help for the quarter, but as long as it shows up and we feel good about that, then from an NAV perspective we’ll be fine.

Okay, great thank you.

Sure.

Thank you. Our next question comes from the line of Craig Schmidt from Bank of America. Your question please.

Hi, good morning. This is Justin Devery for Craig. While we hear your point on retailers reemerging with demand for space, we’ve noticed some of your peers have stated it’s taking a little bit longer in general to get deals done as retailers on the whole are just being more selective now on where they want to open stores. Curious if you guys are seeing this as well.

Yes absolutely. Whether we want to term this the rise of the CFO, no one fault intended John, but the financial side of the business is much more active and part of this transaction has seen new exciting merchants emerge and emerge with the capital to do a deal and this shifting, this shuffling of the deck, changing of leadership, it’s going to take a while. And until it does, things are happening slower than they should. And that’s fine because I’d rather the see the new emerging retailers be disciplined and be careful about how they are making their decisions than to flame out.

Thanks and appreciate the update on City Point. I was curious if there anything you learnt from leasing this project that can be applied to perhaps the urban assets in the core portfolio, specifically as it pertains to the food hall and having that in place from the big boxes in place before leasing the small shop space.

Absolutely and yes, City Point is very instructive to us on what’s working, what the shopper today is interested in. So you know there is that saying that’s been around that food is a new fashion and fitness in the new food and we are seeing all of that. That the shopper wants authentic, the shopper wants real and the retailer online originally wants profits and so what we are also starting to see is that the retailers are saying hey we need to be in a place like this that has the dynamic food hall, that has Alamo Drafthouse which I used to think of them as a movie theater and then as I spent time there I realized that’s another food outlet, its anther entertainment ally – all of that matters. But what we are also seeing is along with that combination of food and entertainment, that there are ligament retailers who are recognizing that that’s what they want to be around and so we are trying to be patient, we are trying to be disciplined in which ones we are bringing in, but you are going to see a bunch on formally online only stores. They need reference to couple of them starting to shop. I had no reason to think if they are not also going to show up in our core as they begin to get better grounded in terms of their business.

Thanks for taking my question.

Sure.

Thank you [Operator Instructions]. Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your question please.

Hi, thanks, good morning. So just a follow-up on the leasing activity in the Chicago and New York Street portfolios for the eleven spaces. You commented that you hit the rent projected on the space in Chicago. But how are rents trending for the remainder of that space, based on discussions. You know in understand the timing is a little uncertain but how confident are you in achieving the rents that you’ve projects?

So the good news is we didn’t buy too much, we avoided the vintage that would make the peak rents necessary. So when I say we are achieving our rents thankful, we bought 2010, ‘11, ‘12, ‘13 and as you may really we kind of step to the sidelines for ’14, ’15 because we articulated that rental assumptions were growing too high and we couldn’t get there. So our rental assumptions were more rational and thus we are getting to them. The volatility Todd has been the bigger issue. The fact that retailers have been a little sluggish and I don’t blame them. When you saw rents growing 10%, 20% a year less Chicago more New York and then you see the declining 10%, 20%, 30%. If you are the new Head of Real Estate for an up and coming retailer, you want to be really careful that your finding the bottom or finding stability and so they were all being taking there time. That being said, we are seeing them start to show up at the rents that we assumed and so its achieving our long term 4% growth and that’s I said – we try to avoid this 10% to 20% conversation, in that rollercoaster and we are getting there.

Okay, and then how much time does it take from lease signing to rank commencement for these, you know some of these smaller street retail spaces on average?

Yeah, I mean Todd is totally depended on retailer. I think on Serena & Lily I mentioned we’ve signed that literally in the past few days and they are not going to be in the space until the second quarter of ’18 and that could be given they are new to the retail space as they transition from an ecommerce player. So it’s really dependent upon who the nature of the retail is, but in the report for example on Ross, that took seven months, but I think on some of these streets we tell in the space and it doesn’t, often times it doesn’t need much work to get up and running. It could take the sixty to ninety range. So it’s very volatile in the nature of the retailer that’s taking it and what the plans are for this space.

Okay and then just maybe if just I shift over to you know the acquisitions a little bit here. So Ken, you been disciplined now for many quarters, particularly in the quarter as you mentioned and you commented that patience isn’t one of your strongest characteristics. If we think ahead what’s the strategy that some opportunities do present themselves as you expect, but you don’t have the right currency to work with.

So – and you are absolutely right. It is a match funding process and if you don’t have the currency, then you better be willing to lever up and we historically have not – especially when you are in periods of high volatility like we are right now, and then usually what you see people do if they are smart about it, if they say we are not going to lever up, we are not going to issue our stock, we should go leverage off of other institutional capital, use our skills, use our capabilities, because boy there is good opportunities out there. Now usually then they go and they say, ‘oh we got to go raise money we want to go get commitments.’ We have that money, we got the commitments. We’ve got $1.3 billion of buying power right now, fully subject to only our discursion. So what I say is and I hope it’s not the case, but if we do not have the ability to do on balance sheet acquisitions and opportunities present themselves, we got the capital. You’ve seen us do this before, whether it was in Cortland Manor, dating back to Mervyn's and Alberton’s, a whole verity of things, thus we have that issue solved. That being said, on the on balance sheet side, I’d like to continue to grow our core portfolio. We doubled it over the last five years until the recent correction. I think we can double it again. Not very quarter, but you ought to able to assume five years from now we will find opportunities one way or another, because if this is a permanent correction it has a whole different set of conversations there. I think right now what you have a lot of noise, a lot of confusion in the market place. This will settle down and then we will start seeing opportunities to add to the growth profile of our existing core portfolio.

Thank you.

Sure.

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

Good morning. So do you guys expect to recapture any of the street retail spaces expiring in ’18? Can you also provide an update on the Prince Street properties in SoHo. Are you still proactively looking to take back that space and if not, when did those leases expire?

John here, so in terms of expiry so we still, and Uno de 50 still actually in this space and SoHo and Folli Follie I think is through 2020. So we have some time on the Folli space. In terms of 2018, we have some expirations, but nothing overly meaningful since going into 2018.

And then to be specific on Prince Street, yeah we would take, we are going to get back Uno de 50. Their lease has expired and we are getting them back shortly. The Folli Follie, we would take it back tomorrow but they have more term left. So that negotiation is ongoing.

Okay, great and so just to confirm, when is sorry the first retailer you referred to? When are they moving out or when does their lease expire?

Uno de 50 is moving out and actually may just move down the past few days. I think it was October 31 if I remember correctly.

Okay, great, that’s helpful. And you kind of touched on this but do you think Street retail cap rates in New York and Chicago have moved higher based on kind of the slowing leasing velocity. I’m sure cap rates have gone higher for assets that now have above market rents. But what about you know stabilized assets that was embedded in market to market opportunities. You think cap rates have moved there as well.

And again its depends which hat I’m wearing, but in general cap rates have now moved that much using the clarification which you just did, which is if the retailer is either in profitable and it looks like they are going to be there long term at a rational rent, those are trading – just saw the once in San Francisco, and all the stuff we own, its sub four cap and I have every reason to think whether its Madison Avenue. Chicago is always a little big higher, but Rush and Walton where we are expanding Lululemon, those cap rates are probably as low or pretty darn close as ever, except it’s all about the rent. So if you are getting 3% contractual growth, if there is a view that this is a very strong area, the Rush and Walton Steer in Chicago for instance where tenants are signing up, they are signing new leases, they are long term viable, strong retailers, like Lululemon, like Aritzia or even Tesla, but I won’t get into the whole technology thing. There we are seeing cap rates halt. So that’s a long way of saying, the doubles and details, it’s about the rents, but if the rents feel good, people want to own in these gateway markets and are being very aggressive on pricing. I’d love to see cap rates back up a little bit more because we want to buy more of that stuff.

Okay, great. Thanks, that’s all I have.

Sure.

Thank you. Our next question comes from the line on Lizzie Li from Boenning. You’re question please.

Hi, good morning. This is Lizzie calling in for Floris today. I was wondering if you could elaborate a little more on the prepayment on the Mezzanine investment, the upcoming payment. What kind of assets relate to current plans for their reinvestment of ?

You broke up a little bit. John, why don’t you answer, but it was clear she is asking about our mess book, so why don’t you add some to color to that.

You will see in the press release that we put in roughly $30 million, $32 million I believe is what we had in there that we expect in 2017. $12 million of that came in. In the first half of the year we received a noticed that another $20 million is coming in at some point in the shortly after the next few weeks, which was intended to be – to go out for 2019. It’s roughly if I really an 8% return that we are getting on the money. So we are actively looking at opportunities to redeploy that. Trying to redeploy that in a way obviously where we get, we get returns that we are shooting for and we are in the early stages of looking at that Lizzie. So I would say you’ll stay tuned and I think when we get that back we will announce where we deploy it, but are in the markets looking to add that. And as I said on my call, I just wanted to say a relatively small portion of our business but a meaningful one we’ll keep at around 10% of our GAV and .

And just to put some context on this, at different times we’ve been able to put money out at mid-teens plus returns and in Mezzanine and when those come back there is a real challenge as to whether there is redeployment. As John just articulated, these were relatively straightforward financings that we did either because we were hoping to then convert them into and own assets that we’ve opted not to or for whatever are the reasons. So redeploying it whether it redeploys our funds business, whether it redeploys versus core or ongoing mezz we’ll see. But one way or another it’s kind of hard to complain about having money coming back, given all the dislocations and volatility in the market.

Great, that’s helpful. Thank you.

Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Ken Bernstein for any further remarks.

Thank you all for listening in. We look forward to talking to you again next quarter.