Good afternoon. My name is Dihanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2020 Acadia Realty Trust Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I would like to turn the conference over to Ms. Amy Racanello. You may begin.

Good afternoon and thank you for joining us for the first quarter 2020 Acadia Realty Trust earnings conference call. 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 6, 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. Once the call becomes open for questions, we ask that you limit your first round to 2 questions per caller to give everyone the opportunity to participate. You may ask further questions by re-inserting yourself into the queue, and we will answer as time permits. Now it is my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today’s management remarks.

Thanks, Amy. Good afternoon, everyone. As we get started today, I think it’s important that we first and foremost remind ourselves that this is a health crisis. So I hope everyone on this call, all your loved ones, your friends, your colleagues are safe and healthy. Thankfully, from a health crisis perspective, our team is safe and working remotely. The transition was not easy. It certainly wasn’t fun, but I’ve been incredibly impressed with how smoothly, how professionally our team has made that transition. So today, we’re going to try to update everyone as to what we’re seeing in the retail real estate market as well as with respect to our portfolio. And let me first give an overview of how we’re thinking about the current situation. Then, John Gottfried will discuss our quarterly results, our portfolio breakout, our balance sheet and our liquidity. And then finally, Amy will discuss and update you as to our fund platform. As we think about Acadia and our portfolio, we feel we remain well positioned to navigate through an incredibly challenging time. First of all, we have a portfolio that’s diverse both in tenant base and geographies. Secondly, we have a strong balance sheet with adequate liquidity. Third, we have limited exposure to new development and, thus, any need for significant development capital. And then finally, we have access to our discretionary institutional capital through our funds. Now, that being said, retail is clearly at the epicenter of this crisis, and no retail will be immune. We’re all, to some degree, still fighting through the fog of the current health crisis and then simultaneously trying to gauge the short-term, the medium-term and then the long-term impacts to our economy, to our industry as well as to our portfolios. Now, in the short term,…

Thank you, Ken, and good afternoon. I hope everyone is safe and healthy, and I look forward to seeing each of you in person sometime soon. I’m going to start off with a discussion of our first quarter results along with additional commentary on our April collections, and then moving into a discussion of our balance sheet and liquidity. Before getting into the details of the quarter, I’d like to start off with a few observations as to what we are seeing in our business prior to the onset of COVID. Our business was performing in line, if not actually exceeding our expectations with FFO and same-store NOI trending towards the upper end of our expectations. We were seeing strength in our leasing discussions throughout our portfolio, which was further driving an increased level of optimism. But without a doubt, COVID abruptly shut that down, resulting in our cautious decision to increase our tenant credit reserves. Which as I’ll get into in a moment, it resulted in a $0.04 decline in FFO and a 300 basis point impact on our same-store NOI during the first quarter. Now in terms of relative performance, notwithstanding the 1.4% overall decline in our same-store NOI. We continue to see differentiation within our product mix with our street and urban portfolio outperforming suburban by approximately 200 basis points. So while it’s too early to predict the length and severity as to what comes next, we entered this unprecedented era in a position of strength. And while it remains challenging at the moment, we remain cautiously optimistic that this benefits us when the new normal emerges. Now moving into the details. In terms of same-store NOI, our 1.4% decline in the quarter was driven by 2 primary items, neither of which were contemplated in our initial…

Thanks, John. Today, I’ll provide an update on our fund platform. First, with respect to the balance sheet, overall, each of our funds are in balance from a leverage perspective. We have no material secured or unsecured debt maturities in 2020 in our funds portfolio inclusive of extension options, which are subject to customary conditions. This includes our $200 million financing at City Point, which has an extension option through at least May 2022. You may also note in our supplemental posted on our website that our $150 million Fund V subscription line had less than $5 million drawn on it as of first quarter of 2020. So we have a lot of dry powder. Next, as previously disclosed, there is no ground-up construction currently under way in our fund portfolio. In general, for the foreseeable future, we expect that the only material capital expenditures in the funds will be tenant improvements and/or leasing costs associated with the installation of new tenants with executed leases. This also includes City Point. With respect to our capital allocation strategy, our funds are a mix of street, urban and suburban retail. Several years ago, we pivoted away from taking on new somewhat riskier development projects in favor of acquiring more stable but out-of-favor shopping centers. Instead of simply targeting our nation’s top-20 markets, we focused on 2 key types of properties. First is the only game in town, that is a shopping center with virtually no competitive properties. Here, tenants have few relocation options. And remember, in less-dense markets, home delivery is even more expensive. Thus, assuming a store is profitable with an appropriate rent-to-sales ratio, among other things, that store becomes a critical part of a retailer’s distribution channel. The other type of property is the best game in town, that is…

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

Hey, good afternoon guys. Thanks. John, I just wanted to follow-up. You talked about the accounting adjustments that you made in the first quarter and just given your conservatism on that front early in the process. When you’re considering the 50% collection rate for April, how do you expect to approach Q2 from a collectibility perspective in this environment as you assess what reserves might be appropriate and whether to move leases to a cash basis sort of in this new environment of uncertainty?

Yeah, hi, Christy. So I think it’s a bit early into May where receipts are. So I think we’ll have a lot more detail as to where we are and how tenants open up. But to answer your question, which is actually a technical accounting question for the non-accountants on the call and what Christy is referring to is when we move to a cash basis versus an accrual basis. And I will explain what we do is that, from a tenant perspective, we look at each and every single one of our tenants. We know their profitability at the store. We know their financial backing. We know their ability to continue or have really good view on it. We’re going to assess that as we move through this. And I think as I laid it out in my prepared remarks, we think 5% to 10% either started with something they need to work through or as a result of COVID became so. So that’s the bucket as of right now. We’re going to continue to focus on, and those would be the ones that are at the heightened risk of moving to a cash flow, is that 5% to 10% that we have currently identified as being most stressed.

And, Ken, you talked about the digitally native retailers as a group, these sort of young brands it’s been a big part of your leasing efforts on the street retail side. Can you – sorry if I missed this – can you say what the collection rate was for April for that group? What are they communicating to you in this environment? And we have seen some press on the hesitancy of some of these retailers to take government stimulus funds. So just wondering what you’re hearing from that side?

Sure. So first of all, keep in mind, as I said, it represents 5% of our overall NOI. It’s exciting, because I would argue, if you walk on Armitage Avenue, pre-COVID, some of these young brands are acting like the larger inducement tenants of the last century. And so, that’s why we’re excited about it, not because of their credit quality or because we ever thought they would be a significant part of our NOI. The collection rate, Christy, I don’t have it broken out, but you should expect it was low. That being said, a bunch of them have reached out and said the following, because they started online and omni-channel, they had especially for some of the more mature young brands, they had and continued to have through this solid online sales. Now, to the extent that half of their revenues were coming prior to COVID from the stores, that obviously got hit to the extent that they were not yet profitable or were in need of additional capital just to stay alive. Those are going to be more fragile. But when I think about and when we talk to the retailers about what the future would be, having strong omni-channel capabilities, having the ability to use real estate space more thoughtfully, so Alberts doesn’t care whether you buy their shoes online or in their stores, but they recognize that those are more profitable. So the retailers have been coming back to us already over the last several weeks to talk about how they get reopened and how they get current on rent, and I find that encouraging.

Thanks for the color.

Sure.

Your next question comes from the line of Craig Schmidt of Bank of America.

Thank you. I wanted to know the difference for reopening a high street location from, let’s say, your suburban shopping centers. What is required from Acadia to get these tenants opened?

So there is a few things. Obviously, the governmental requirements will change jurisdiction to jurisdictions. I assume what you’re saying is, once a given city or county has said it is okay to reopen, what does it take? In the case of street and urban assets, since really all we’re able to be in charge of is the sidewalks. We’ll make sure the sidewalks are fine. We’ll work with the retailers in any way we can to make sure that they’re set up safely, but most of that is incumbent on the retailer. When TJ Maxx decides they want to reopen, we have a great relationship with them, our team will be in conversation with them, but TJ will figure out how TJ opens. Now, in terms of suburbia, when we’re working with local retailers, mom and pops who need to figure out so much, so fast, there our team will bring whatever resources we have to help them get safely reopened. They may need PPE. They may need various different types of pick-up abilities. And our team is working to make sure that our parking lots are set up, so that if someone is ordering and picking up that they’re able to do that, but it’s in a very and it’s going to be shopping center by shopping center and case by case.

Great. And then, you had mentioned, obviously, the $600 million dry powder in your fund. What do you think the transaction markets will be like? And what is your strategy going into it? Is it opportunistic or just what do you expect to do with the $600 million dry powder?

Sure. Well, I think cost of capital has gone up for everything other than the treasury market. And it would be imprudent. I’m very happy with the investments our team has made in Fund V to date. It would be imprudent to spend that 40% remaining in ways that we didn’t think rewarded our investors and us for having that kind of available discretionary capital. Here is on my checklist, Craig, things I think about it. We’re still early into both the health crisis and then the reopening of the economy into a severe recession, the amount of unemployment the impact to a variety of shoppers, it’s something that we’re going to have to take very seriously as we think about where will rents resettle on a given asset? And then similarly, we have to watch the debt markets. Thankfully, as opposed to the GFC, our lenders all seem to be in substantially good health. They are cooperative, very cooperative with respect to existing loans, but the new debt market for new acquisitions is somewhat limited. We have a line of credit that Amy pointed out and is virtually fully available. I think we have $3 million drawn on it. So we can certainly bridge acquisitions if they make sense, but I would also want to make sure that there is a healthy, reasonable debt market so that when we acquire assets, we can take into account what the cost of new debt might be and that we make sure that we get rewarded on the equity side. So a bit early. We need to have somewhat better understanding what this recovery will look like and where the distressed and opportunities will be, and to answer your question about how opportunistic, I would assume we’re going to be very opportunistic with the remaining capital.

Thank you.

Sure.

Your next question comes from the line of Ki Bin Kim of SunTrust.

Thanks. Hello all, there. Ken, can you talk about when you look at your portfolio, what percent you think is luxury or aspirational type of tenancy. And I realize not these might not be the 5% to 10% of tenants that were kind of getting into trouble or and heightened risk, but you could also make argument that if there is economic slowdown and it last a little bit longer, can you keep rent integrity in those segments?

Sure. So let me talk about it in terms of luxury big picture, and then John maybe chime in as the percentage. I don’t think luxury as a percentage of our overall portfolio is necessarily large, but it’s important. But and even if it is or is not relative to our portfolio, I think it’s important that we correctly think about each of these segments, and how they are poised in a recovery. So interestingly, after the global financial crisis, luxury froze for about 12 months and then in terms of retail real estate, what we found was it was one of the quickest to rebound and grow. Now we’re in a different economic cycle, different time period. But do keep in mind, what we saw over the last several years for luxury, at least in our portfolio was one that even though international tourism held up until recently, international tourists were not shopping in the U.S. as aggressively as they used to, partially because of the strong dollar. Now fast forward to today, a few different things as we think about luxury rebounding. One is we don’t expect any significant immediate international tourist shopping, but we also don’t expect the U.S. shoppers to go abroad as quickly to take advantage of their strong dollar and shop abroad. So when I talk to our retailers, they’re balancing the pros and cons on that side. The other thing to keep in mind is this economic recession will impact different segments of our society and economy differently. And I’m not suggesting that the luxury shopper is not going to become the Ross Dress for Less shopper for a while. But let’s be careful and not assume that it’s going to treat everyone equally. The last thing is one of the headwinds for luxury prior to COVID was the concept that the consumer was interested in spending money more on experiences on luxury travel on a whole host of other things. And that’s also going to be tempered. And so I can’t predict exactly how this plays out, but I would be very cautious in assuming that the luxury segment is going to be impacted necessarily the same way that our restaurants, especially our local restaurants are going to really feel this or other segments that may be more exposed to the deep recession. John, how much is luxury as a percentage of our NOI?

Yeah. Hi, Ki Bin. So yeah, luxury of our overall portfolio is about 7% – just under 7% of our total portfolio.

Okay. And just a second question here. When you look at you guys broke out your industry exposures in the supplemental but when you break that out further, like what percent of your restaurants are actually, do you think, are pretty resilient? And even the parallel section, which is a fairly decent-sized bucket, I’m sure it’s all different. What is the percent you think is more resilient versus at risk?

So Kim, let me take the restaurant one first. So keeping on the restaurant side, so I think as we laid out our supplemental, it’s about 8% of our revenues come from restaurant. And I would say, of that 8%, 75% of that is what we think about in terms of quick service. So that’s the Starbucks, Chipotles, Burger Kings, et cetera.

So in terms of apparel, and John, if I get any of this wrong chime in, but we touched on the young brands, the 5% of our tenants on Armitage Avenue, Greenwich Avenue in Connecticut, some of the other areas. And I think it’s going to be really dependent on those brands that have a highly differentiated product and ability to execute. And I think the exposure there will be partially about the economy, but also just of their overall capitalization. And you’ll be able, in the next several months, I think we’ll all have a better sense of who’s going to make it and who’s not. And then there’s a 7% luxury, I’ve already touched on that. The most significant component is our off-price. TJX, Ross Dress for Less, Nordstrom Rack, and what I would tell you is, at least for the next season or 2, the amount of product that will be available to push through the system, because it will not go full price, is likely to be a significant tailwind for those type of retailers. And so I would expect them to once they can get reopened in a safe and productive way, I would expect there to be a fair amount of resilience on that side.

Okay. Thank you.

Sure.

Your next question comes from the line of Todd Thomas, KeyBanc Capital Markets.

Hi, thanks, good afternoon. Ken, I just wanted to follow-up on some comments you made in your opening remarks about the balance sheet. You mentioned the company has adequate liquidity, and I’m just curious, with $250 million of total capacity on the revolver, the company’s liquidity appears to be a little tighter relative to peers despite having a strong balance sheet and leverage profile. Is the size of the company’s line appropriate? Is there room to increase capacity there in order to take advantage of both an increase a potential need for increased liquidity, but also to take advantage of dislocations that might arise for the core or for your equity contributions for the funds?

Sure. So 2 ways we think about it, Todd, and I think you phrased it correctly. In terms of is that adequate liquidity for where we stand now and where we’re likely to stand for the next several months, not in terms of being opportunistic, but simply in terms of treading water jogging places, as John pointed out. And at 50% collections, Todd, we cover all our debt service, our expenses, et cetera. So we can tread water for an indefinite period at a horrifically low collection rate. But we’re not particularly well built for just sitting around treading water. Said differently, I’d say, treading water is like my least favorite swim stroke. So in terms of going back on offense, we are talking to our lenders. And thankfully, they’ve been very supportive, and it is very possible that we will increase that capacity. But to be clear, right now, all we would do is draw down on the line and put cash in deposit earnings zero. May be a smart thing to do, and we may do some of that, but it’s going to sit there earning zero until we’re ready to go back on offense. Keep in mind, when we go on offense, our fund business tends to more or less be able to self fund in others, we have fees coming in. We have capital coming in. And then there’s our pro-rata share going out. But the most likely place for us to go back on offense is the utilization of the funds and that discretionary capital sitting there, we would not need to expand our lines to go ahead and execute on our strategy on Fund V unless extraordinary circumstances arose. So I think we’re in fine shape. Maybe we increase the line, whether it’s just so that everyone sleeps better at night, but it is not essential for us to either tread water or to go back on offense of Fund V.

Okay. And then Ken, maybe Amy can chime in here. But normally, I think you’d be maybe drawing up documents or getting materials together for Fund VI at this point with $200 million of equity capital left in Fund V, perhaps you’d be fundraising a little bit here. Do you anticipate moving forward with Fund VI at this point? Is that possible? And can you just share some insight, maybe how your LPs are thinking today about the fund business and what they’re thinking about in terms of allocating capital?

Sure. I’ll go first, Amy, but add any additional color. As you know, we have until, I think it’s a year from August, to spend Fund V capital. LP’s views right now are we would prefer you to spend the money we’ve already allocated to you before you come back. Management’s view is it’s hard enough to raise money on the road, but trying to do it on Zoom, which strike me as even more difficult. So first and foremost, we’ll be spending Fund V, and our LPs and we’re in constant contact with them appropriately so, remain very supportive. Fund V up until COVID was yielding mid-teens returns. As Amy walked through, we’re still covering very nicely, and while those distributions will slow down for a while, we feel pretty to very good about the overall success of that. And so I think that will bode well for a Fund VI. That being said, my guess is until we get further into the deployment of the 40% left in Fund V. And until, frankly, we’re on airplanes, it’s a little harder. So for the next 6 months between now and year-end, we’ll be focusing on everything else we’ve been talking about on this call, plus deploying Fund V, and I – that Fund VI, those conversations start at some point in 2021.

Okay. Thank you.

Sure.

Your next question comes from the line of Hong Zhang of JPMorgan.

Yeah, hi. Just 2 questions for me. Number one, of the 5% to 10% of tenants that you identified as at risk, does that skew one way or another towards urban or your suburban portfolio? And my second question would just be, as you talk about how you expect to recoup the majority of the non-rental payments, have you entered into expense agreements one way or another with your tenants on when you’ll be paid back?

John, why don’t you take the first, and then we can toss a coin for the second?

Yes, good. Hey, Hong, how are you? So I think in terms of the 5% to 10%, I think it’s fairly evenly throughout our portfolio. What I would say is when we look at the replacement rents that we need to get on them, we’re very comfortable that once the world gets back up and running again, that we replace those. But it’s quite fairly even.

As it relates to ongoing negotiations with retailers, notwithstanding early reports, that were legitimate, of some very aggressive positions, we have found most retailers coming back to a reasonable position. There’s always going to be outliers. And so I’ve been impressed with the job the team has been doing. If there are rent deferral agreements that impact the collections in one given month, so be it, but to the extent that it adds the clarity as to what the next year or 5 or 10 years look like, we welcome that. And so, those conversations, negotiations are ongoing. We’re finding most retailers to be realistic and reasonable, respectful of the fact that we are not a lender of first resort or a business interruption insurer, but that we are in this to see that everyone gets to the other side successfully, and that’s our expectation.

Got it. Thank you.

Your next question comes from the line of Linda Tsai from Jefferies. Linda Tsai, your line is open.

Hello.

Linda? Why don’t we come back to Linda, operator?

Your next question comes from the line of Vince Tibone of Green Street Advisor. Vince, your line is open. Your next question comes from the line of Floris van Dijkum of Compass Point.

Great. Can you guys hear me?

Thank you. Yes, we can. We were beginning to feel lonely.

Yeah, sorry. I’m not sure, this remote thing could be a little more difficult. The question – the write-down that you took on your fund assets, was that related to increasing the cap-rates on those assets or was it in relation to a reduced NOI or maybe it’s combination, which one had the more – the greater impact?

John, do you want to cover that?

Sure. Yeah, hi, Floris. So, keep in mind, just on – and Amy highlighted this in her remarks, that it’s a different model between what we hold in the core versus the fund. So without going into a ton of details, it’s fairly difficult to get to on a long-term hold within the core, an impairment charge. Whereas on the fund, it’s much more – it’s much closer to a mark-to-market. So to directly answer your question, the assets that we took the impairments on were a combination of really where we thought we could sell these assets at, and from a holding period, so both primarily around the NOI I think is what the key driver was.

And, Floris, just keep in mind, if we plan on selling something 2 years from now, and we believe this crisis results in a 1 year delay in getting to that stabilized rent, that in and of itself has a material impact and we have to account for that.

Got it. Another question and, Ken, maybe this is more for you. In terms of your – where do you see the opportunities going forward? And as you rightly pointed out, you’ve always intended to, in the past, take advantage of dislocation to create value and to increase the company or grow the company going forward. Are you more excited right now with what you see on the streets, a retail portion of your portfolio or what you’re seeing in the suburban market, given that a lot of people are saying, well, gosh, look at that higher rents collection and the greater – the higher percentage of essential tenants? Where do you see more upside going forward for yourself in terms of potential opportunities to grow?

So – and the first answer, I think everyone needs to understand. The short answer is it’s still a little bit early. And assuming we are going to be opportunistic and where there is dislocations, here’s the issue with New York City, I’m actually bullish. As I pointed out, Floris, we only have 10% of our NOI is in Manhattan. So it’s not that I’m pounding the table on our book. But you’ve even seen now recent transactions, a couple of them involving public companies being sellers. The worldwide demand for the key gateway cities may not result in the level of distress that we’re all going to be looking for. And so, we just have to be cognizant of notwithstanding how horrific the screens look when you see family step in and buy New York City, you just saw a recent-announced transaction for retail on Fifth Avenue. But it may be true for many of the cities. While I salivate at the thought of us being able to find real dislocation there, it just may not happen. Now, that’s okay, because we have a broad skill-set, and if the private markets backstop the key gateway markets, all the better for our NAV. The second piece of this is my guess is there’s going to be a fair amount of debt restructuring. We’ve done plenty of those over the past decades. Existing lenders finding themselves in a position where they need rescue capital. Existing borrowers may be or either fatigued or interested in a hope certificate or just in need of the capital to re-stabilize. It wouldn’t surprise me that a lot of our transactions will be in that category. Again, whether it’s suburban or urban, we can do both. We’ll see where the opportunities are. And the final thing is I love the fact that Target is open and paying us rent. But I’d be surprised that I’d have a lot of opportunities to buy existing essential Target or supermarket at prices that justify the kind of returns we want. So we’ll be prepared to have to roll up our sleeves and do more heavy-lifting than just hiding behind essentials.

Great. Thanks again.

Sure.

Thank you at this time. I would like to turn the conference back over to Mr. Ken Bernstein for closing remarks.

Great. Well, as I started the conversation, hope everyone is safe and healthy. Can’t wait to see everybody in person. And until then, we’ll keep working, and hopefully, everybody stays safe and sound. Thank you.

Thank you for participating in today’s conference. This concludes today’s call. You may disconnect at this time. Presenters, please hold.